REDWOOD MORTGAGE INVESTORS VII
                       (a California Limited Partnership)
                               Index to Form 10-K

                                December 31, 2004

<TABLE>
<S>        <C>                                                                                               <C>

                                                 Part I
                                                                                                             Page No.
                                                                                                           -----------
Item 1   - Business                                                                                           3
Item 2   - Properties                                                                                         7
Item 3   - Legal Proceedings                                                                                  7
Item 4   - Submission of Matters to a Vote of Security Holders (Partners)                                     7

                                                  Part II

Item 5   - Market for the Registrant's "Limited Partnership Units" and Related Unitholder Matters             7
Item 6   - Selected Financial Data                                                                            8
Item 7   - Management's Discussion and Analysis of Financial Condition and Results of Operations              9
Item 7a  - Quantitative and Qualitative Disclosures About Market Risk                                         18
Item 8   - Financial Statements and Supplementary Data                                                        20
Item 9   - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure               42
Item 9a  - Controls and Procedures                                                                            42
Item 9b  - Other Information                                                                                  42

                                                  Part III

Item 10  - Directors and Executive Officers of the Registrant                                                  43
Item 11  - Executive Compensation                                                                              44
Item 12  - Security Ownership of Certain Beneficial Owners and Management                                      45
Item 13  - Certain Relationships and Related Transactions                                                      45
Item 14  - Principal Accountant Fees and Services                                                              45

                                                  Part IV

Item 15  - Exhibits, Financial Statements and Schedules                                                        46

Signatures                                                                                                     47

Certifications                                                                                                 48
</TABLE>


                                       1
<PAGE>



                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                    Form 10-K

        (Mark One)
        [X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                 SECURITIES EXCHANGE ACT OF 1934

                      For the Year Ended December 31, 2004

                                       OR

        [   ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                 SECURITIES EXCHANGE ACT OF 1934

         For the transition period from ______________ to ______________

                        Commission File Number: 33-30427

                         REDWOOD MORTGAGE INVESTORS VII,
                        a California Limited Partnership
             (Exact name of registrant as specified in its charter)

                 California                                 94-3094928
(State or other jurisdiction of incorporation   (I.R.S. Employer Identification)
               or organization)

900 Veterans Blvd., Suite 500, Redwood City, CA              94063
  (address of principal executive offices)                (zip code)

                 (650) 365-5341
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12 (b) of the Act:      NONE

Securities registered pursuant to Section 12 (g) of
the Act:                                               Limited Partnership Units

     Indicate by check mark whether the  registrant (1) has filed all reports to
be filed by Section 13 or 15 (d) of the  Securities  Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

Yes            XX             No
          --------------             -------------

     Indicate by check mark whether the registrant is an  accelerated  filer (as
defined in Rule 12b-2 of the Exchange Act).

Yes                           No          XX
          --------------             -------------

     As of June 30, 2004, the aggregate value of limited  partnership units held
by  non-affiliates  was  $9,048,879.  This  calculation  is based on the capital
account balance of the limited partners and excludes limited  partnership  units
held by the general partner.

Documents incorporated by reference:

     Portions of the Prospectus  dated October 20, 1989, and Supplement #5 dated
February 14, 1992,  filed on form S-11, are  incorporated  in Parts II, III, and
IV.  Exhibits filed as part of Form S-11  Registration  Statement  #33-30427 are
incorporated in part IV.


                                       2
<PAGE>
                                     Part I

Item 1 - Business

     Redwood  Mortgage  Investors  VII, a California  limited  partnership  (the
"Partnership"),  was  organized  in 1989 of which  Michael R.  Burwell and Gymno
Corporation, a California corporation,  are the general partners. The address of
the  Partnership  and the general  partners is 900  Veterans  Blvd.,  Suite 500,
Redwood  City,  California  94063.  The  Partnership  is  organized to engage in
business as a mortgage  lender,  for the primary purpose of making loans secured
by deeds of trust on California real estate.  Loans are arranged and serviced by
Redwood Mortgage Corp., an affiliate of the general partners.  The Partnership's
objectives  are to make  investments,  as  referred to above,  which  will:  (i)
provide the maximum  possible cash returns  which limited  partners may elect to
(a)  receive as monthly,  quarterly  or annual  cash  distributions  or (b) have
credited to their capital  accounts and applied to Partnership  activities;  and
(ii) preserve and protect the Partnership's  capital. The Partnership's  general
business  is  more  fully  described  under  the  section  entitled  "Investment
Objectives and Criteria" pages 26-31 of the Prospectus, which is incorporated by
reference.

     Originally,  60,000 Units were offered on a "best  efforts"  basis  through
broker/dealer member firms of the National Association of Security Dealers, Inc.
In accordance with the terms of the Prospectus,  the general partners  increased
the number of Units for sale from 60,000 to 120,000 and elected to continue  the
offering until  September 30, 1992.  The offering  closed on September 30, 1992,
and the limited partners  contributed capital totaled $11,998,359 of an approved
$12,000,000  issue,  in Units of $100 each. At that date all the  applicants had
been admitted into the Partnership with none left in the applicant  status.  The
final SR report  (Report of Sales of Securities  and use of proceeds  therefrom)
was filed on September 21, 1992.

     The Partnership  began selling Units in October 1989 and began investing in
mortgages in December 1989. At December 31, 2004, the  Partnership had a balance
in its secured loan portfolio  totaling  $7,388,478  with interest rates thereon
ranging from 6.50% to 10.50%.

     Currently, loans secured by First Trust Deeds comprise 80.36% of the amount
of funds in the secured loan portfolio followed by Second Trust Deeds of 19.64%.
Owner-occupied  homes combined with non-owner occupied homes total 60.82% of the
secured loans.  Commercial loans decreased from last year, now comprising 26.03%
of the secured  portfolio.  Loans to  apartments  totaled  13.15%.  Of the total
secured  loans,  66.34% are in five  counties of the Bay Area,  and the adjacent
counties of Monterey, San Joaquin, Merced, and Solano Counties collectively make
up  9.62%  of the  loans.  Additionally,  the  northern  Californian  County  of
Sacramento  makes up  11.72% of the  loans.  The  balance  of loans  12.32%  are
primarily in Southern California.  Loan size decreased the past year, and is now
averaging  $263,874  per loan,  a decrease of $96,162.  Some of the larger loans
invested in by the  Partnership  are  fractionalized  between  other  affiliated
partnerships  with  objectives  similar to those of the  Partnership  to further
reduce risk.  Average equity per loan transaction  based on appraised values and
senior debt at the inception date of the loan, which is our loan plus any senior
loans, divided by the property's appraised value, subtracted from 100%, stood at
28.70%.  A 40% equity average on loan  origination is generally  considered very
conservative.  Generally,  the more equity,  the more protection for the lender.
The  Partnership's  loan  portfolio  is in good  condition  with one property in
foreclosure as of December 2004.

     Delinquencies  are discussed  under Item 7 -  Management's  Discussion  and
Analysis of Financial Condition and Results of Operations.

     For the year ended December 31, 2004 the Partnership  took back vacant land
through a deed in lieu of  foreclosure.  No  property  was  taken  back in 2003.
During the year 2002, the Partnership acquired one piece of real estate property
through  foreclosure.  To  assist  in  protecting  its  own  assets  and  reduce
liability,  the  Partnership  subsequently  transferred  the property to a newly
formed LLC, called the Stockton Street  Property  Company,  LLC. The Partnership
owned a 34% minority interest in the Stockton Street Property Company,  LLC, and
another affiliated  partnership owns the remaining interest.  Assets of this LLC
were sold  during  2003 and the  Partnership  incurred  a loss of  approximately
$42,000.  The LLC will be  dissolved  when its final tax return for year 2004 is
filed.  The LLC is further  discussed under Notes to Financial  Statements (Note
6).

                                       3
<PAGE>

     In prior years, the Partnership took back two additional properties through
foreclosure.  One is a commercial  property which the Partnership  sold in 2004.
The Partnership  realized a loss of  approximately  $613,800 on the sale of this
property.  This loss was offset against  reserves  previously set aside for real
estate owned  properties.  The second property taken back in 1993 is a parcel of
land located in East Palo Alto, CA, which is on the market for sale. The general
partners believe that this property is worth considerably more than its carrying
value,  but it may take a  considerable  amount of  additional  time to sell the
property and realize its full  potential.  The property is unique in that it may
only be utilized for commercial or industrial uses.  Until recently,  land sales
activity  has been slow.  Interest in land sales for  commercial  sites has been
improving.

Competition and General Economic Conditions

     The Partnership's  major competitors in providing mortgage loans are banks,
savings and loan associates,  thrifts,  conduit lenders,  mortgage brokers,  and
other entities both larger and smaller than the Partnership.  The Partnership is
competitive  in large part  because the general  partners  generate all of their
loans.  The general partners have been in the business of making or investing in
mortgage  loans in Northern  California  since 1978 and have developed a quality
reputation and recognition within the field.

     Beginning in July of 2004,  the Federal  Reserve  changed its interest rate
policy from one of three years of continuously lowered interest rates, which hit
a 40 year historic  interest  rate low, to one of tempered but gradual  interest
rate  increases.  In keeping with this new policy  since July 2004,  the Federal
Reserve has  increased the Federal  Funds Rate by one quarter  percentage  point
(1/4 of one percent) at each of its last five  meetings to 2.25% as of March 22,
2005. This  deliberate  upward change in the Federal Funds Rate has caused short
term interest rates to rise, and to a lesser degree, pushed longer term rates up
as well.  Nationally and more specifically in Northern California,  the location
of the majority of our lending activities, the economies are recovering from the
economic  downturn from 2000 to 2003.  Employment  and job creation is improving
but is still lower than  desirable.  During 2004, the residential and commercial
real  estate  markets  in  Northern  California  enjoyed  a solid  year of price
appreciation. With the prospect of solid real estate values, low interest rates,
and an  improving  economy,  lenders  of all types are  anxious to lend money to
borrowers  secured  by their  real  estate.  Competition  for  loans is  fierce.
Additionally,  those  borrowers that had waited hoping to find the bottom of the
interest  rate cycle,  have decided  that the time has come to  refinance  their
existing higher rate loans. This has caused a significant  amount of loan runoff
to lower interest rate lenders than the partnership. These two factors have made
it  difficult,  particularly  in the final  quarter of the year 2004, to stay as
fully invested as is optimum. It is anticipated that significant competition for
loans will  continue.  Excess cash will be invested  in  short-term  alternative
investments,  such as money market  funds  yielding  considerably  less than the
current loan investment portfolio.

                                       4
<PAGE>

Secured Loan Portfolio

     A summary of the  Partnership's  secured loan  portfolio as of December 31,
2004 is set forth below.
<TABLE>
   <S>                                                                                <C>

   Loans as a Percentage of Appraised Values

   First Trust Deed Loans                                                            $ 5,937,736
   Appraised Value of Properties at Time of Loan                                       7,971,833
                                                                                  ---------------
            Total First Trust Deeds as a % of Appraisal                                   74.48%
                                                                                  ===============

   First Trust Deed Loans                                                              5,937,736
   Second Trust Deed Loans                                                             1,450,742
                                                                                  ---------------
                                                                                       7,388,478
   Priority positions due other Lenders at Time of Loan
       First Trust Deed Loans due other Lenders                                        1,944,172
                                                                                  ---------------

            Total Debt                                                               $ 9,332,650
                                                                                  ===============

     Appraised Property Value at Time of Loan                                        $13,089,113
            Total Loans as a % of Appraisal based on appraisals and prior
               liens at date of loan                                                      71.30%
                                                                                  ===============

   Number of Secured Loans Outstanding                                                        28
                                                                                  ---------------

   Average Secured Loan                                                                  263,874
   Average Secured Loan as a % of Secured Loans Outstanding                                3.57%
   Largest Secured Loan Outstanding                                                      800,000
   Largest Secured Loan as a % of Secured Loans Outstanding                               10.83%
   Largest Secured Loan as a % of Partnership Assets                                       8.69%

   Secured Loans as a Percentage of Total Secured Loans                              Percent
   ----------------------------------------------------------------------------------------------

   First Trust Deed Loans                                                                 80.36%
   Second Trust Deed Loans                                                                19.64%
                                                                                  ---------------
            Total Trust Deed Loan Percentage                                             100.00%
                                                                                  ===============
</TABLE>
<TABLE>
   <S>                                                     <C>                        <C>

   Secured Loans by Type of Property                       Amount                     Percent
   -----------------------------------------      -----------------------------------------------

   Owner Occupied Homes                                   $  2,532,045                34.27%
   Non-Owner Occupied Homes                                  1,961,474                26.55%
   Apartments                                                  971,864                13.15%
   Commercial                                                1,923,095                26.03%
                                                         --------------            ----------
            Total                                         $  7,388,478               100.00%
                                                         ==============            ==========
</TABLE>

                                       5
<PAGE>

     The following is a distribution of secured loans outstanding as of December
31, 2004 by Counties.

                                                  Total
             California County                Secured Loans            Percent
   --------------------------------        ------------------       ------------

   San Francisco Bay Area Counties
   Alameda                                      $  1,820,817             24.64%
   San Francisco                                   1,275,581             17.26%
   Santa Clara                                       883,780             11.96%
   San Mateo                                         561,591              7.60%
   Contra Costa                                      360,377              4.88%
                                               --------------       ------------
                                                   4,902,146             66.34%
                                               ==============       ============

   San Francisco Bay Area Adjacent
   Counties
   Monterey                                          200,000              2.71%
   Solano                                            159,749              2.16%
   Merced                                            145,417              1.97%
   San Joaquin                                       140,360              1.90%
   Stanislaus                                         64,850              0.88%
                                               --------------       ------------
                                                     710,376              9.62%

   Other California Counties
   Sacramento                                        866,168             11.72%
   San Diego                                         800,000             10.83%
   Madera                                            109,788              1.49%
                                               --------------        -----------
                                                   1,775,956             24.04%

            Total                               $  7,388,478            100.00%
                                               ==============       ============

Statement of Condition of Secured Loans:
   Number of Secured Loans in Foreclosure:     1
Scheduled maturity dates of secured loans as of December 31, 2004
are as follows:

                Year Ending December 31,                Amount
           -----------------------------------       --------------

                          2005                           $ 817,184
                          2006                           1,872,944
                          2007                           1,246,754
                          2008                             198,272
                          2009                           3,041,833
                       Thereafter                          211,491
                                                     --------------
                         Total                         $ 7,388,478
                                                     ==============

     The  Partnership's  largest  loan  in  the  principal  amount  of  $800,000
represents 10.83% of outstanding  secured loans and 8.69% of Partnership assets.
Larger  loans  sometimes  increase  above 10% of the secured  loan  portfolio or
Partnership assets as these amounts decrease due to limited partner  withdrawals
and loan payoffs.

     The scheduled maturities for 2005 include two loans totaling  approximately
$64,850 which are past maturity at December 31, 2004. Interest payments on these
past maturity loans were not delinquent  over 90 days.  The  Partnership  allows
borrowers to  occasionally  continue to make the payments on debt past  maturity
for periods of time. The Partnership, in most instances, receives the benefit of
a higher  interest  rate than would  otherwise  be  available  in the  currently
existing loan  marketplace.

     The loan portfolio had three loans with  principal  outstanding of $984,880
where  interest  payments  were  overdue  in  excess of 90 days.  The  principal
outstanding of these three loans represents 13.33% of the Partnership's  secured
portfolio as of December 31, 2004.

                                       6
<PAGE>

     Included in the loans with interest  payments  overdue in excess of 90 days
is one loan,  with  principal  outstanding of $96,716 (1.31% of the secured loan
portfolio),  which was  considered  impaired at  December  31,  2004.  A loan is
considered  impaired  when  events  and/or  changes in  circumstances  cause the
management to have serious doubts about the  collectibility  of the  contractual
payments and interest is no longer accrued.

     At December 31, 2004, total past maturity loans,  overdue interest payments
in excess of 90 days, and impaired loans totaled  $1,049,730  representing  five
loans which were 14.20% of the secured  loan  portfolio

Item 2 -  Properties

     The Partnership took back vacant land through a deed in lieu of foreclosure
in 2004. The land is located in Stanislaus County,  California.  It is comprised
of three separate lots,  which total  approximately  14 acres.  This property is
owned  together  with  two  affiliated   partnerships.   The  Partnership's  net
investment in the land at December 31, 2004 was $1,752,836. The property will be
put on the market for sale during 2005.  The general  partners  believe that the
property will return the  Partnership's  investment  upon sale. The  Partnership
also owned a  commercial  property  located in Walnut  Creek,  California.  This
property was sold during 2004 at a loss of approximately $613,800. This loss was
offset against reserves  previously set aside for real estate owned  properties.
During 2002, the  Partnership  took back the  collateral  security on one of its
loans through  foreclosure.  This loan was originally  fractionalized  and owned
with another affiliated  Partnership.  In order to reduce potential  liabilities
the  Partnership  transferred  at its book value the real estate taken back to a
newly formed Limited  Liability Company called Stockton Street Property Company,
LLC. The real estate security was six condominium  units.  Management of the LLC
was through its  managing  member,  Michael  Burwell,  a general  partner of the
Partnership.  By the end of 2003 all the units were sold  resulting in a loss to
the Partnership of  approximately  $42,000.  It is anticipated  that in 2005 the
Stockton  Street  Property  Company,  LLC will be closed and its operations will
cease.

     The  Partnership  also  owns  (through  previous   foreclosure)  one  other
property:  an undeveloped  parcel of land located in East Palo Alto. The land is
owned with two other affiliated  partnerships.  The Partnership's net investment
in the land at December  31, 2004 is $62,720.  Currently  the property is on the
market for sale. The  Partnership's net investment of $62,720 is less than 1% of
Partnership  assets.  The general  partners  believe  that the property is worth
considerably more than its net investment, but it may take a considerable amount
of  additional  time to sell the  property and realize its full  potential.  The
property is unique in that it may only be utilized for  commercial or industrial
uses. Until recently,  land sales activity has been slow. Interest in land sales
for commercial sites has been improving.

Item 3 - Legal Proceedings

     In the normal  course of business the  Partnership  may become  involved in
various types of legal  proceedings  such as  assignments  of rents,  bankruptcy
proceedings,   appointments   of   receivers,   unlawful   detainers,   judicial
foreclosures, etc., to enforce the provisions of the deeds of trust, collect the
debt owed under the promissory notes or to protect or recoup its investment from
the real property  secured by the deeds. As of the date hereof,  the Partnership
is not  involved  in any  legal  proceedings  other  than  those  that  would be
considered part of the normal course of business.

Item 4 - Submission of Matters to a Vote of Security Holders (Partners)

     No matters have been submitted to a vote of the Partnership.

                                     Part II

Item 5 - Market for the Registrant's "Limited Partnership Units" and Related
Unitholder Matters

     120,000  Units  at $100  each  (minimum  20  Units)  were  offered  through
broker-dealer  member firms of the National Association of Securities Dealers on
a "best  efforts"  basis (as  indicated  in Part I item 1).  Investors  have the
option of  withdrawing  earnings  on a monthly,  quarterly,  or annual  basis or
reinvesting and compounding the earnings. Limited partners may withdraw from the
Partnership in accordance with the terms of the Partnership Agreement subject to
possible early  withdrawal  penalties.  There is no  established  public trading
market.

     A  description  of  the  Partnership  Units,   transfer   restrictions  and
withdrawal  provisions  is more  fully  described  under  the  section  entitled
"Description of Units" and "Summary of Limited Partnership Agreement",  pages 47
to 50 of the Prospectus, a part of the referenced Registration Statement,  which
is incorporated by reference.


                                       7
<PAGE>

Item 6 - Selected Financial Data

     Redwood Mortgage Investors VII began operations in December 1989.

     Financial  condition and results of operation for the Partnership as of and
for the five years ended December 31, 2004 were:

                                 Balance Sheets

                                     Assets
<TABLE>
<S>                                         <C>                <C>              <C>              <C>                <C>

                                                                        December 31,
                                    --------------------------------------------------------------------------------------

                                            2004               2003             2002             2001               2000
                                        --------------     -------------    -------------    --------------    ---------------

Cash and cash equivalents                  $  346,393        $  321,114       $1,057,845       $   389,844       $    269,000

Loans
   Loans, secured by deeds of trust         7,388,478         8,280,826        6,423,984        10,091,195         12,794,297
   Loans, unsecured                           238,484           232,551          216,770           173,731            188,421
   Less allowance for loan losses           (745,476)         (680,469)        (791,882)         (887,578)          (850,548)

Interest and other receivables
   Accrued interest and late fees             190,105           489,995          304,936           666,189            363,321
   Advances on loans                            8,188             6,484           17,230            50,665             29,825

Real estate held for sale, net              1,782,182           633,053          683,136           872,133            816,094
Investment in LLC                                   -                 -        1,212,722                 -                  -
                                        --------------     -------------    -------------    --------------    ---------------
                                           $9,208,354        $9,283,554       $9,124,741       $11,356,179       $ 13,610,410
                                        ==============     =============    =============    ==============    ===============

                        Liabilities and Partners' Capital

                                                                        December 31,
                                        ------------------------------------------------------------------------------------

                                            2004               2003             2002             2001              2000
                                        --------------     -------------    -------------    ---------------    --------------
Liabilities
  Line of credit                           $        -        $  200,000       $        -       $ 1,907,000       $ 3,500,000
  Accounts payable                              4,951             4,102            2,593            11,295             4,102

  Deferred interest                                 -                 -           37,704             2,322                 -
  Payable to affiliate                         74,987            51,288           32,176             3,316                 -
                                        --------------     -------------    -------------    ---------------    --------------
                                               79,938           255,390           72,473         1,923,933         3,504,102

Partners' capital
  General partners                             11,973            11,973           11,978            11,978            11,978
  Limited partners subject
      to redemption                         9,116,443         9,016,191        9,040,290         9,420,268        10,094,330
                                        --------------     -------------    -------------    ---------------    --------------
Total partners' capital                     9,128,416         9,028,164        9,052,268         9,432,246        10,106,308
                                        --------------     -------------    -------------    ---------------    --------------
                                           $9,208,354        $9,283,554       $9,124,741       $11,356,179       $13,610,410
                                        ==============   ===============    =============    ===============    ==============
</TABLE>



                                       8
<PAGE>

                              Statements of Income
<TABLE>
<S>                                           <C>               <C>              <C>                <C>               <C>

                                                                            December 31,
                                          ----------------------------------------------------------------------------------

                                              2004              2003             2002               2001              2000
                                          --------------    -------------    --------------    ---------------    -------------

Gross revenue                               $   868,274      $   782,280      $  1,078,186       $  1,192,381       $1,437,964
Expenses                                        289,628          189,639           314,704            371,184          537,818
                                          --------------    -------------    --------------    ---------------    -------------

Net income                                  $   578,646      $   592,641      $    763,482       $    821,197       $  900,146
                                          ==============    =============    ==============    ===============    =============

Net income to general partners (1%)               5,786            5,926             7,635              8,212            9,001
Net income to limited partners (99%)            572,860          586,715           755,847            812,985          891,145
                                          --------------    -------------    --------------    ---------------    -------------
                                            $   578,646      $   592,641      $    763,482       $    821,197       $  900,146
                                          ==============    =============    ==============    ===============    =============

Net income per $1,000 invested by
 limited partners for entire period:
     - where income is compounded
                                            $        65      $        67      $         85       $         85       $       85
                                          ==============    =============    ==============    ===============    =============

     - where partner receives income
         in monthly distributions           $        63      $        65      $         82       $         82       $       82
                                          ==============    =============    ==============    ===============    =============
</TABLE>

     Annualized yields when income is compounded or distributed  monthly for the
years 2000 through 2004 are outlined in the table below:

                                        Compounded         Distributed
                                      ---------------     ---------------
                    2000                  8.52%               8.21%
                    2001                  8.50%               8.19%
                    2002                  8.44%               8.13%
                    2003                  6.66%               6.47%
                    2004                  6.49%               6.30%

     Average  annualized  yield from inception  through  December 31, 2004, when
income is compounded and retained, was 7.70%.

     Average  annualized  yield from inception  through  December 31, 2004, when
income is distributed monthly was 7.45%.


Item 7 - Management Discussion and Analysis of Financial Condition
and Results of Operations

Management Discussion and Analysis of Financial Condition
and Results of Operations

Critical Accounting Policies.

     In  preparing  the  financial  statements,  management  is required to make
estimates based on the information available that affect the reported amounts of
assets and  liabilities  as of the balance  sheet dates and income and  expenses
during  the  reporting  periods.   Such  estimates  relate  principally  to  the
determination of (1) the allowance for loan losses (i.e. the amount of allowance
established  against loans  receivable as an estimate of potential  loan losses)
including   the  accrued   interest  and  advances  that  are  estimated  to  be
unrecoverable  based on estimates of amounts to be collected  plus  estimates of
the value of the  property as  collateral  and (2) the  valuation of real estate
acquired through foreclosure. At December 31, 2004, we owned four pieces of real
property.

     Loans and the related accrued interest, late fees and advances are analyzed
on a regular basis for recoverability. Delinquencies are identified and followed
as part of the loan  system.  A provision  is made for loan losses to adjust the
allowance for loan losses to an amount  considered by management to be adequate,
with due consideration to collateral  value, to provide for unrecoverable  loans
and receivables,  including impaired loans, other loans, accrued interest,  late
fees and  advances  on loans  and other  accounts  receivable  (unsecured).  The
Partnership charges off uncollectible loans and related receivables  directly to
the  allowance  account  once it is  determined  that  the  full  amount  is not
collectible.



                                       9
<PAGE>

     If the probable  ultimate  recovery of the carrying  amount of a loan, with
due  consideration  for the fair value of  collateral,  is less than amounts due
according to the  contractual  terms of the loan  agreement and the shortfall in
the amounts due are not  insignificant,  the carrying  amount of the  investment
shall be reduced to the  present  value of future cash flows  discounted  at the
loan's effective interest rate. If a loan is collateral dependent,  it is valued
at the estimated fair value of the related collateral.  If events and or changes
in  circumstances  cause  management  to have  serious  doubts about the further
collectibility  of the  contractual  payments,  a loan  may  be  categorized  as
impaired and interest is no longer accrued.  Any subsequent payments on impaired
loans are applied to reduce the  outstanding  loan  balances  including  accrued
interest and advances.

     Recent  trends in the  economy  have been taken into  consideration  in the
aforementioned  process of arriving at the  allowance  for loan  losses.  Actual
results could vary from the aforementioned provisions for losses.

Forward Looking Statements.

     Certain  statements  in this  Report on Form 10-K which are not  historical
facts may be considered forward-looking statements within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
and  Exchange  Act of 1934,  as  amended,  including  statements  regarding  the
Company's expectations,  hopes, intentions, beliefs and strategies regarding the
future.  Forward-looking statements include statements regarding future interest
rates and  economic  conditions  and their  effect  on the  Partnership  and its
assets, future sales of properties held by the Partnership and the proceeds from
such sales,  trends in the California  real estate  market,  estimates as to the
allowance for loan losses,  estimates of future limited partner  withdrawals and
2005 annualized yield estimates. Actual results may be materially different from
what is projected by such forward-looking  statements.  Factors that might cause
such a difference include unexpected changes in economic conditions and interest
rates,  the impact of competition and  competitive  pricing and downturns in the
real estate  markets in which the Company  has made loans.  All  forward-looking
statements  and reasons  why  results may differ  included in this Form 10-K are
made as of the date  hereof,  and we assume  no  obligation  to update  any such
forward-looking statement or reason why actual results may differ.

Related Parties.

     The general  partners of the Partnership are Gymno  Corporation and Michael
R. Burwell.  Most  Partnership  business is conducted  through Redwood  Mortgage
Corp.,  an  affiliate  of the general  partners,  which  arranges,  services and
maintains  the loan  portfolio  for the  benefit  of the  Partnership.  The fees
received by the  affiliate  to the  general  partners  are paid  pursuant to the
partnership agreement and are determined at the sole discretion of the affiliate
to the general partners.  In the past, the affiliate to the general partners has
elected not to take the maximum compensation. The following is a list of various
Partnership activities for which related parties are compensated.

     o Mortgage  Brokerage  Commissions  For fees in connection with the review,
selection,  evaluation,  negotiation and extension of loans, an affiliate of the
general  partners may collect an amount  equivalent  to 12% of the loaned amount
until 6 months after the termination date of the offering.  Thereafter, the loan
brokerage  commissions (points) will be limited to an amount not to exceed 4% of
the total Partnership  assets per year. The loan brokerage  commissions are paid
by the borrowers, and thus, are not an expense of the Partnership. For the years
ended  December  31,  2004,  2003 and 2002 loan  brokerage  commissions  paid by
borrowers were $93,465, $111,927 and $24,661, respectively.

     o Mortgage  Servicing Fees Monthly mortgage  servicing fees of up to 1/8 of
1% (1.5% on an annual basis) of the unpaid principal of the Partnership's  loans
is paid to Redwood  Mortgage  Corp.,  or such lesser amount as is reasonable and
customary in the  geographic  area where the  property  securing the mortgage is
located. Once a loan is categorized as impaired,  mortgage servicing fees are no
longer accrued thereon.  Additional servicing fees are recorded upon the receipt
of any  subsequent  payments  on  impaired  loans.  Mortgage  servicing  fees of
$81,442,  $73,062 and $163,531  were  incurred for the years ended  December 31,
2004, 2003 and 2002, respectively.

     These  servicing  fees  were  charged  at 1%, on an  annual  basis,  of the
outstanding  principal balances.  If the maximum mortgage servicing fee of 1.5%,
on an annual basis, had been charged to the  Partnership,  then net income would
have been reduced by  approximately  $46,733.  Reducing  net income  reduces the
annualized  yields. An increase or decrease in this fee within the limits set by
the partnership agreement directly impacts the yield to the limited partners.


                                       10
<PAGE>

     o Asset  Management  Fees The general  partners  receive  monthly  fees for
managing the Partnership's portfolio and operations up to 1/32 of 1% of the `net
asset  value'  (3/8 of 1% on an annual  basis).  Management  fees to the general
partners of $34,073,  $34,011 and $34,869 were incurred by the  Partnership  for
the years ended December 31, 2004, 2003 and 2002, respectively.

     o Other Fees The partnership  agreement  provides that the general partners
may receive other fees such as  reconveyance,  mortgage  assumption and mortgage
extension  fees.  Such fees are  incurred by the  borrowers  and are paid to the
general partners.

     o Income and Losses  All  income  and  losses  are  credited  or charged to
partners in relation to their respective Partnership  interests.  The allocation
to the general partners (combined) shall be a total of 1%.

     o Operating  Expenses An affiliate  of the  Partnership,  Redwood  Mortgage
Corp.,  is reimbursed by the  Partnership  for all operating  expenses  actually
incurred  by it on  behalf of the  Partnership,  including  without  limitation,
out-of-pocket general and administration expenses of the Partnership, accounting
and audit fees,  legal fees and expenses,  postage and preparation of reports to
limited partners.

     o  Contributed   Capital  The  general   partners   jointly  and  severally
contributed  cash  equal  to  1/10  of 1% of the  total  capital  raised  by the
Partnership.  The general  partners  contributed  this cash as proceeds from the
offerings were received from the limited  partners.  As of December 31, 2004 and
2003, a general partner,  Gymno Corporation,  had contributed $11,973 as capital
in accordance with Section 4.02(a) of the partnership agreement.



                                       11
<PAGE>

Results of Operations - For the three years ended December 31, 2004, 2003 and
2002.

     On September 30, 1992, the Partnership  had sold  119,983.59  Units and its
contributed  capital totaled  $11,998,359 of the approved  $12,000,000 issue, in
Units of $100 each.  As of that date,  the  offering  was  formally  closed.  At
December 31, 2004, Partners' Capital totaled $9,128,416.

     Changes in the Partnership's operating results for the years ended December
31, 2004 and December 31, 2003 are discussed below:
<TABLE>
<S>                                                       <C>                       <C>

                                                          Changes during            Changes during
                                                          the year ended            the year ended
                                                         December 31, 2004        December 31, 2003
                                                            versus 2003              versus 2002
                                                       ----------------------    ---------------------

Net income increase/(decrease)                             $ (13,995)                  $(170,841)

                                                         =============               =============
  Revenue
     Interest on loans                                     $   69,902                   (289,092)
     Late charges                                             (4,231)                       (867)
     Other income                                              20,323                     (5,947)

                                                         -------------               -------------
                                                           $   85,994                  $(295,906)
                                                         -------------               -------------

  Expenses
     Mortgage servicing fees                               $    8,380                  $ (90,469)
     Interest expense                                           1,832                    (45,752)
     Clerical costs from Redwood Mortgage Corp.               (5,188)                     (7,558)
     Asset management fees                                         62                       (858)
     Provisions for losses on loans and real estate            83,306                       1,740
     Professional services                                      5,591                       3,594
     Other                                                      6,006                      14,238
                                                         -------------               -------------

                                                           $   99,989                  $(125,065)
                                                         -------------               -------------
          Net income increase/(decrease)
                                                           $ (13,995)                  $(170,841)
                                                         =============               =============
</TABLE>

     The  increase in  interest  on loans of $69,902  (9.34%) for the year ended
December 31, 2004, was primarily attributable to a higher average loan portfolio
balance of $7,834,652  in 2004  compared to an average  balance of $7,352,405 in
2003.  The increase is also  attributed  to an interest rate increase of 1.5% on
notes  totaling  $1,089,820  during  2004.  The decrease in interest on loans of
$289,092  (27.86%) for the year ended December 31, 2003 versus December 31, 2002
was  primarily  attributable  to a  lower  average  loan  portfolio  balance  of
$7,352,405  carried  by the  Partnership  in 2003,  versus  $8,257,590  in 2002.
Additionally,  the average  portfolio  interest  rate has been  declining,  from
10.04%  in 2002 to 9.45% in 2003 and to 9.36% in 2004.  This has the  effect  of
reducing  interest  income or moderating  interest  income growth during periods
when the portfolio  increased and  exacerbating  interest income declines during
periods of portfolio decreases.

     The  decline in late charge  revenue by $4,231 for the year ended  December
31,  2004  and by $867 for the  year  ended  December  31,  2003  was  primarily
attributable  to  improved  loan  collections  and  reduced  delinquencies.  The
reduction is also due to a decline in delinquent loans in 2004.



                                       12
<PAGE>

     For 2004,  the increase in other income is due to the receipt of $23,143 as
an  irrevocable  fee from a potential  buyer of a real estate  property held for
sale; offset by a reduction in miscellaneous  income of $2,820. The reduction of
$5,947 for the year ended  December 31, 2003,  is  primarily  attributable  to a
decline in early withdrawal penalties totaling $9,804;  offset by an increase in
miscellaneous income of $3,857.

     The increase in mortgage  servicing  fees of $8,380 in 2004 and the decline
of $90,469  in 2003 is largely  attributable  to the  Partnership's  fluctuating
average  portfolio  balances of $7,834,652 in 2004 and  $7,352,405 in 2003.  The
significant  increase  in  mortgage  servicing  fees in  2002  was  also  due to
collection  of  interest,  and,  and hence the  mortgage  servicing  fees,  from
impaired loans which paid of in 2002. The Partnership  does not accrue servicing
fees due or payable to Redwood  Mortgage on impaired  loans.  Rather,  servicing
fees on impaired loans are incurred as borrower payments are received

     Interest  expense  increased  $1,823 for the years ended  December 31, 2004
versus 2003.  The average line of credit  borrowing for the year ended  December
31, 2004 was $382,265  versus an average  borrowing of $407,249 for December 31,
2003.  Although the average borrowing for 2003 was higher,  the average interest
rate for 2003 was 4.33%,  whereas  the  average  interest  rate  during 2004 was
4.93%.  The  decline in  interest  expense in 2003  versus 2002 was due to lower
average line of credit usage and reduced interest rates in 2003.

     The  decrease  in  clerical  costs of $5,188 and $7,558 for the years ended
December 31, 2004 and 2003,  respectively,  was primarily  attributable to lower
clerical costs servicing the Partnership.

     Loan loss  provisions/(recoveries)  were $65,007,  $(18,299), and $(20,039)
for the years  ended  December  31,  2004,  2003,  and 2002,  respectively.  The
increase in provision for 2004 was  precautionary  due to the  foreclosure  that
existed at December  31,  2004.  A negative  provision of $20,039 and $18,299 in
2002 amd 2003 was due to management's  assessment of the  appropriate  loan loss
allowance at such dates.

     The general partners believe that the allowance for loan losses of $745,476
at December 31, 2004 was adequate to offset potential losses on loans.

     Increases  in  professional  fees of $5,591 and $3,594 for the years  ended
December 31, 2004 and 2003, respectively, were primarily attributable to general
accounting  cost increases in 2004 compared to 2003 in relation to its audit and
tax return processing.

     Increases  in other  expenses  of $6,006 and  $14,238  for the years  ended
December 31, 2004 and 2003,  respectively,  were primarily  attributable  to the
upkeep  costs of the real  estate  held for  sale  properties.  The  Partnership
expensed  $20,567 and $13,980  for the years ended  December  31, 2004 and 2003,
respectively, on the properties.


                                       13
<PAGE>

Allowance for Losses.

     The general  partners  regularly  review the loan portfolio,  examining the
status of delinquencies,  the underlying  collateral  securing these properties,
the on real  estate  held for sale  expenses  and  sales  activities,  borrowers
payment  records,  etc. Data on the local real estate market and on the national
and local economy are studied.  Based upon this information and other data, loss
reserves  are  increased or  decreased.  The  Partnership  is not a credit based
lender and hence  while it reviews the credit  history and income of  borrowers,
and if  applicable,  the income from income  producing  properties,  the general
partners expect that we will on occasion take back real estate security.  During
2001,  the Northern  California  real estate  market slowed and the national and
local economies had slipped into recession. During 2003, the economy stabilized,
and saw  improvement  during  2004.  Borrower  foreclosures,  as set forth under
Results of  Operations,  are a normal aspect of  Partnership  operations and the
general  partners  anticipate  that  they  will not have a  material  effect  on
liquidity.  As of  December  31,  2004,  the  partnership  had  two  loans  with
outstanding principal totaling $64,850 past maturity. Interest payments on these
two past maturity loans were not delinquent over 90 days. In addition,  the loan
portfolio had three loans with principal  outstanding of $984,880 where interest
payments were overdue in excess of 90 days. These loans, overdue in excess of 90
days,  include the  partnership's  only  outstanding  notice of default filed at
December 31,  2004.  This loan has a principal  balance of $776,228.  Loans with
interest  payments  that  were  overdue  in excess  of 90 days  include  overdue
payments  relating to the  partnership's  only  impaired loan as of December 31,
2004.. This loan has a principal balance outstanding of $96,716. At December 31,
2004, total past maturity loans,  loans with overdue interest payments on excess
of 90 days,  and impaired  loans totaled  $1,049,730  representing 5 loans which
were 14.20% of the secured loan portfolio.  The Partnership  enters into workout
agreements  with  borrowers who are past maturity or delinquent in their regular
payments. The Partnership had workout agreements on four loans totaling $260,919
as of December 31, 2004.  Typically,  a workout agreement allows the borrower to
extend the  maturity  date of the balloon  payment,  allows the borrower to make
current monthly payments while deferring for periods of time, past due payments,
or  allows  time  to  pay  the  loan  in  full.  These  workout  agreements  and
foreclosures  generally  exist  within our loan  portfolio  to greater or lesser
degrees,  depending  primarily  on the  health  of the  economy.  The  number of
foreclosures  and  workout  agreements  will  rise  during  difficult  times and
conversely  fall during good  economic  times.  The number and amount of workout
agreements existing at December 31, 2004, in management's opinion, does not have
a material effect on our results of operations or liquidity. These workouts have
been considered when  management  arrived at appropriate  loan loss reserves and
based on our experience, are reflective of our loan marketplace segment. Because
of the number of variables  involved,  the magnitude of the possible  swings and
the general partners inability to control many of these factors,  actual results
may and do sometimes  differ  significantly  from  estimates made by the general
partners.  Management provided $65,007,  ($18,299) and ($20,039),  as provisions
(recoveries)  for losses on loans and real estate for the years  ended  December
31, 2004, 2003 and 2002, respectively. The general partners believe that current
reserves  for losses are  adequate to handle  potential  losses.  If  conditions
change,  the  Partnership  may increase its  provisions for loan losses and real
estate held for sale.

The Partnership may restructure loans. This is done either through the
     modification  of an  existing  loan or by  rewriting  a whole new  loan.  A
modification could involve, among other conditions, an extension in maturity
date, a reduction in repayment amount, a change in interest rate, or granting of
additional loan funds.

     The  Partnership  did not  restructure  any loan in 2004.  During  2003 the
Partnership  restructured two loans into one existing loan with a lower interest
rate.  This  resulted  in an  increase to loans  receivable  of  $107,198  and a
decrease to accrued  interest and late fees and advances of $88,685 and $18,513,
respectively.


                                       14
<PAGE>

Borrower Liquidity and Capital Resources.

     The partnership  relies upon loan payoffs,  borrowers'  mortgage  payments,
and, to a lesser  degree,  its line of credit for the source of funds for loans.
Over the past several years,  mortgage  interest  rates have decreased  somewhat
from those available at the inception of the partnership. If interest rates were
to  increase  substantially,  the yield of the  partnership's  loans may provide
lower yields than other comparable debt-related investments. Additionally, since
the  partnership  has made primarily fixed rate loans, if interest rates were to
rise, the likely result would be a slower  prepayment rate for the  partnership.
This  could  cause a lower  degree of  liquidity  as well as a  slowdown  in the
ability  of the  partnership  to  invest in loans at the then  current  interest
rates. Conversely,  in the event interest rates were to decline, the partnership
could see significant borrower  prepayments,  which, if the partnership can only
obtain the then  existing  lower rates of interest,  may cause a dilution of the
partnership's yield on loans,  thereby lowering the partnership's  overall yield
to the limited partners. The partnership to a lesser degree relies upon its line
of credit to fund  loans.  Generally,  the  partnership's  loans are fixed rate,
whereas the credit line is a variable  rate loan.  In the event of a significant
increase in overall  interest  rates,  the credit  line rate of  interest  could
increase to a rate above the average portfolio rate of interest.  Should such an
event occur,  the general  partners  would desire to pay off the line of credit.
Retirement  of the line of credit  would  reduce the  overall  liquidity  of the
partnership.  Cash is  constantly  being  generated  from  borrower  payments of
interest,  principal  and loan  payoffs.  Currently,  cash flow greatly  exceeds
partnership  expenses  and  earnings  payout  requirements.  Excess cash flow is
invested in new loan  opportunities,  when available,  and is used to reduce the
partnership credit line or for other partnership business.

     At the time of subscription to the  Partnership,  limited  partners made an
irrevocable decision to either take distributions of earnings monthly, quarterly
or annually or to compound  earnings  in their  capital  account.  For the years
ended December 31, 2004, 2003 and 2002, the Partnership  made  distributions  of
earnings to limited partners of $198,794, $211,610, and $303,020,  respectively.
Distribution of earnings to limited  partners,  which were not withdrawn for the
years ended  December  31,  2004,  2003 and 2002 were  $374,066,  $375,105,  and
$452,827,  respectively. As of December 31 2004, 2003 and 2002, limited partners
electing  to  withdraw  earnings  represented  35%,  34% and 36% of the  limited
partners' capital.

     The  Partnership  agreement  also allows the  limited  partners to withdraw
their  capital  account  subject to  certain  limitations.  For the years  ended
December 31, 2004, 2003 and 2002, $34,267, $22,690, and $186,716 were liquidated
subject to the 10% penalty for early  withdrawal.  These  withdrawals are within
the normally  anticipated  range that the general partners would expect in their
experience in this and other  partnerships.  The general  partners expect that a
small  percentage  of limited  partners  will elect to liquidate  their  capital
accounts  over one year  with a 10%  early  withdrawal  penalty.  In  originally
conceiving  the  Partnership,  the general  partners  wanted to provide  limited
partners  needing  their  capital  returned  a degree of  liquidity.  Generally,
limited  partners  electing to withdraw  over one year need to  liquidate  their
investment  to  raise  cash.  The  trend  the  Partnership  is  experiencing  in
withdrawals  by  limited  partners  electing  a  one  year  liquidation  program
represents  a small  percentage  of limited  partner  capital as of December 31,
2004, 2003, and 2002, respectively.

     Additionally,  for the years  ended  December  31,  2004,  2003,  and 2002,
$239,547,  $376,511,  and  $646,089,  respectively,  were  liquidated by limited
partners who have elected a  liquidation  program over a period of five years or
longer.  This ability to withdraw  after five years by limited  partners has the
effect of providing  limited partner  liquidity.  The general  partners expect a
portion of the limited  partners to take advantage of this  provision.  This has
the  anticipated   effect  of  the  Partnership   growing,   primarily   through
reinvestment of earnings in years one through five. The general  partners expect
to see increasing  numbers of limited partner  withdrawals in years five through
eleven,  after  which time the bulk of those  limited  partners  who have sought
withdrawal  have been  liquidated.  After  year  eleven,  liquidation  generally
subsides.

                                       15
<PAGE>

     Earnings and capital liquidations,  including early withdrawals, during the
three years ended December 31, 2004 were:
<TABLE>
<S>                <C>                                <C>                                 <C>

                            Years ended December 31,

                   Earnings                           Capital
                  Liquidation                       Liquidation                           Total
                 --------------                    ---------------                    ----------------

2004             $     198,794                         *$273,814                       $     472,608

2003             $     211,610                         *$399,204                       $     610,814

2002             $     303,020                         *$832,805                       $   1,135,825
</TABLE>

* These are gross amounts, which are not net of early withdrawal penalties.

     In some  cases in order to  satisfy  Broker  Dealers  and  other  reporting
requirements, the general partners have valued the limited partners' interest in
the  Partnership  on a basis which  utilizes a per Unit  system of  calculation,
rather than based upon the investors' capital account. This information has been
reported  in this manner in order to allow the  Partnership  to  integrate  with
certain  software used by the Broker Dealers and other  reporting  entities.  In
those cases, the Partnership will report to Broker Dealers,  Trust Companies and
others a  "reporting"  number of Units based upon a $1.00 per Unit  calculation.
The number of reporting Units provided will be calculated based upon the limited
partner's  capital  account  value  divided by $1.00.  Each  investor's  capital
account balance is set forth  periodically on the Partnership  account statement
provided  to  investors.  The  reporting  Units are solely  for  Broker  Dealers
requiring such information for their software programs and do not reflect actual
Units owned by a limited  partner or the limited  partners' right or interest in
cash flow or any other  economic  benefit in the  Partnership.  Each  investor's
capital  account balance is set forth  periodically  on the Partnership  account
statement  provided  to  investors.  The  amount of  Partnership  earnings  each
investor is entitled to receive is determined by the ratio that each  investor's
capital account bears to the total amount of all investor  capital accounts then
outstanding.  The capital account balance of each investor should be included on
any NASD member client account statement in providing a per Unit estimated value
of the client's investment in the Partnership in accordance with NASD Rule 2340.

     While the general  partners have set an estimated value for the Partnership
Units,  such  determination  may not be  representative  of the  ultimate  price
realized  by an  investor  for such Units upon sale.  No public  trading  market
exists for the Partnership's Units and none is likely to develop. Thus, there is
no certainty  that the Units can be sold at a price equal to the stated value of
the capital account. Furthermore, the ability of an investor to liquidate his or
her investment is limited subject to certain  liquidation rights provided by the
Partnership, which may include early withdrawal penalties.

Current Economic Conditions.

     From July 1 through  December 31, 2004, the Federal  Reserve  increased the
Federal  Funds  Rate four  times by one  quarter  percentage  point  (1/4 of one
percent) each time to 2.00%. These were the first Federal Funds Rate increase in
more than three years and may indicate that the Federal  Reserve has changed its
interest  rate policy to increased  rates for the  foreseeable  future.  A 1.00%
upward shift in the Federal Funds Rate will not have a material  effect upon the
interest rates the Partnership charges borrowers.  If, however, there are future
interest  rate  increases or if they remain at their current  levels,  borrowers
will no longer be encouraged  through  continually  declining  interest rates to
prepay their debts through  refinancing  of their  obligations.  This could mean
that the Partnership may begin experiencing less prepayments by borrowers in its
portfolio.  This would  reduce  the need for the  Partnership  to replace  these
prepaid loans with new loans at lower interest rates. Additionally,  the overall
real estate  marketplace  has become much more active in the last twelve months,
particularly  in Northern  California.  The general  partners  believe  that the
average loan  portfolio  interest rate may decline as some  remaining  borrowers
that did not refinance their loans to lower interest rates take advantage of the
current low rates of interest  available.  Based upon existing note rates in the
portfolio and the  Partnership's  expectations  of stable  interest rates in the
near  future,  the  Partnership  anticipates  that the  average  loan  portfolio
interest rate will stabilize during 2005. From the general partners' experience,
we anticipate  that the  annualized  yield for 2005 will range between 6.00% and
6.50%.

                                       16
<PAGE>

     The  Partnership  makes  loans  primarily  in  Northern  California.  As of
December 31, 2004,  approximately  66.34% ($4,902,146) of the secured loans held
by the  Partnership  were in five of the San  Francisco Bay Area  Counties.  The
remaining loans held were secured  primarily by Northern  California real estate
outside  the San  Francisco  Bay  Area.  Like  the  rest of the  nation,  during
2000-2002,  the San Francisco Bay Area felt the recession and accompanying  slow
down in economic growth and increasing unemployment. The technology companies of
Silicon Valley, the airline industry,  the tourism industry and other industries
are feeling the effects of the overall  United States  economy,  which  includes
lower earnings, job losses and layoffs.

     Recently the national Northern  California  economies seem to be improving.
Job creation remains a concern, as little job creation seems to be evident.  The
partnership makes loans primarily in Northern  California and real estate values
of residential,  commercial,  multi-family properties and land are of particular
interest  to the  partnership.  Real  estate  is the  primary  security  for the
partnership's loans.

     The residential  real estate market in California  continues to appreciate.
The San  Francisco  Chronicle  dated  January 20, 2005  reported  that  "Despite
earlier forecasts of softer housing demand in 2004, low interest rates drove the
Bay Area real estate market to record levels last year. The median sale price of
a single-family home in 2004 was $532,000,  a 17% rise over $455,000 in 2003 and
the highest for any year since 1988,  real  estate  information  firm  DataQuick
reported  Wednesday.  A total of 134,848  houses and condos changed hands in the
nine  counties in 2004,  blowing past the previous  peak of 122,149 set in 2003.
December,  traditionally  a slow time for real estate sales,  closed out 2004 in
strong  -  although  not  record-setting  -  fashion.  The  median  price  for a
single-family  home hit $554,000,  a 17% jump over the December 2003 median. The
record median of $560,000 was set in November.  The housing boom wasn't expected
to last through  2004.  In the face of  anticipated  interest  rate hikes,  many
economists had predicted that local and national real estate markets would cool.
But after mortgage rates rose for several weeks in the spring, disappointing job
growth  reignited fears about the economy,  driving rates lower. The uncertainty
created  by both  rising  and  falling  rates  prompted  buyers to jump into the
housing market. John Karevoll, [a researcher at DataQuick in La Jolla (San Diego
County)]  expects  appreciation  rates to ease from the mid to high teens to the
single  digits once the benchmark  30-year fixed  mortgage rate climbs closer to
6.5 or 7.0% later in the year.  Last week,  mortgage  giant Freddie Mac said the
30-year fixed rate hit 5.74%."

     While the residential  market outlook remains strong overall the commercial
real estate market appears equally strong.

     As reported  in the San  Francisco  Business  Times for the week of January
7-13, 2005 "The numbers are in and they're looking pretty.  San Francisco office
market  fundamentals  improved  during the last  quarter of 2004,  with  overall
vacancy shrinking to between 15.4% and 19%, depending on which brokerage firm is
crunching  the  numbers.  Main  reasons?  Dwindling  supply  due  to  stalemated
construction,  a handful of  residential  conversions  and a hopped-up  tally of
positive net  absorption.  According to Tove  Nilsen,  Colliers  International's
director of market  research,  the S.F office  market as a whole logged  699,843
square feet of positive absorption during the last quarter of the year, bringing
the annual total to 1.2 million square feet. Cushman & Wakefield Senior Research
Associate  Brad Van Blois (who counts 1.198  Million  square feet of overall net
absorption for the year)  attributes a big chunk of that - 302,610 square feet -
to fresh companies  moving to town.  Space-hungry/expanding  companies also made
this the sixth  consecutive  quarter  for  positive  net  absorption  - a marked
turnaround from the exodus of mid-2000 to mid-2003. And rents? They stabilized.

     For the year,  city-wide  Class A direct rent  decreased 1.9% to $28.80 per
square foot,  Class B space  slipped 1.6% to $22.80 and Class C declined 4.3% to
$19.44,  according  to  Cushman  &  Wakefield.  Class A rents in the  commercial
business  district also  dropped,  to $30.48 in the fourth  quarter  compared to
$30.60 during the same period last year, also according to Van Blois.  But prime
Class A space in the financial  district is getting  harder to come by, with the
sweetest  sublease  space now soaked up by other  tenants  and mostly  commodity
space left. Class A space in the financial  district was $31.15,  up from $30.36
the previous  quarter,  according to Nilsen.  As expected,  commercial  building
sales - the hot ticket  for all of last year - beat all  previous  records.  Low
interest  rates and pent up demand  pushed dozens of investors to buy a whopping
$2.5 billion in  commercial  buildings  in the city this year,  beating the $2.4
billion record set in 2000,  according to Nilsen. [Van Blois] added: "The market
fundamentals have improved each quarter,  and it's  encouraging,  but overall we
still have a long way to go." Sales stayed steady  through the year end, with 23
commercial  and  industrial  properties  closing  escrow  during  the  month  of
November,  according to Jennifer  Raike of Old Republic Title Co.'s monthly list
of transactions."

     As of December 31, 2004, the Partnership had an average loan to value ratio
based on appraisals  and prior liens as of the date the loan was made of 71.30%.
This did not account for any increases or decreases in property values since the
date  the loan was  made,  nor does it  include  any  reductions  in prior  lien
principal through amortization of payments after the loan was made.

                                       17
<PAGE>

     This low loan to value ratio will assist the Partnership in weathering loan
delinquencies and foreclosures should they eventuate.

Contractual Obligations:  None


Item 7a - Quantitative and Qualitative Disclosures About Market Risk

     The  following  table  contains  information  about  the cash held in money
market accounts,  secured loans held in the  Partnership's  portfolio and on our
line of credit as of December 31, 2004. The  presentation,  for each category of
information,  aggregates the assets and  liabilities by their maturity dates for
maturities  occurring  in each of the years  2005  through  2009 and  separately
aggregates the information  for all maturities  arising after 2009. The carrying
values of these assets and liabilities  approximate  their fair market values as
of December 31, 2004:
<TABLE>
<S>                              <C>          <C>           <C>          <C>          <C>       <C>             <C>

                                 2005         2006          2007         2008         2009      Thereafter      Total
                             ------------- ------------ ------------- ------------ ------------ ------------ -------------
Interest earning assets:
Money market accounts           $ 309,458                                                                      $  309,458
Average interest rate               0.60%                                                                           0.60%
Loans secured by deeds
   of trust                     $ 817,184    1,872,944     1,246,754      198,272    3,041,833      211,491    $7,388,478
Average interest rate              10.00%        9.46%         9.00%       10.50%        9.16%       10.00%         9.36%
Interest bearing
   Liabilities:
Line of credit                          -                                                                               -
Average interest rate               5.25%                                                                           5.25%
</TABLE>

Market Risk.

     The Partnership's line of credit bears interest at a variable rate, tied to
the prime rate. As a result, the Partnership's primary market risk exposure with
respect to its  obligations is to changes in interest  rates,  which will affect
the interest cost of outstanding  amounts on the line of credit. The Partnership
may also suffer market risk tied to general trends  affecting real estate values
that may impact the Partnership's security for its loans.

     The Partnership's  primary market risk in terms of its profitability is the
exposure to  fluctuations  in earnings  resulting from  fluctuations  in general
interest rates. The majority of the  Partnership's  mortgage loans earn interest
at fixed  rates.  Changes  in  interest  rates may also  affect the value of the
Partnership's   investment  in  mortgage  loans  and  the  rates  at  which  the
Partnership  reinvests  funds  obtained  from loan  repayments  and new  capital
contributions  from limited partners.  If interest rates increase,  the interest
rates the Partnership obtains from reinvested funds will generally increase, but
the value of the Partnership's existing loans at fixed rates will generally tend
to decrease.  The risk is mitigated  by the fact that the  Partnership  does not
intend to sell its loan  portfolio,  rather  such  loans are held until they are
paid off. If interest  rates  decrease,  the amounts  becoming  available to the
Partnership  for  investment  due  to  repayment  of  Partnership  loans  may be
reinvested at lower rates than the  Partnership had been able to obtain in prior
investments,  or than the rates on the repaid loans. In addition,  interest rate
decreases may encourage  borrowers to refinance their loans with the Partnership
at a time where the  Partnership  is unable to reinvest  in loans of  comparable
value.

     The  Partnership  does not hedge or otherwise seek to manage  interest rate
risk. The Partnership does not enter into risk sensitive instruments for trading
purposes.

                                       18
<PAGE>

PORTFOLIO REVIEW - For the years ended December 31, 2004, 2003 and 2002.

Loan Portfolio

     The Partnership's  loan portfolio  consists primarily of short-term (one to
five years),  fixed rate loans secured by real estate.  As of December 31, 2004,
2003 and 2002 the  Partnership's  loans secured by real  property  collateral in
five of the San Francisco Bay Area counties  (San  Francisco,  San Mateo,  Santa
Clara,  Alameda and Contra Costa) represented  $4,902,146  (66.34%),  $5,982,000
(72.24%), and $3,353,000 (52.20%), respectively, of the outstanding secured loan
portfolio.  The  remainder of the  portfolio  represented  loans secured by real
estate located primarily in Northern California.

     The  following  table  sets  forth the  distribution  of loans  held by the
Partnership  by property  type for the years ended  December 31, 2004,  2003 and
2002:
<TABLE>
<S>                                      <C>              <C>        <C>                 <C>         <C>               <C>

                                                                           December 31,
                                     -----------------------------------------------------------------------------------------
                                                2004                           2003                          2002
                                     ---------------------------     -------------------------    ----------------------------
Single-family homes (1-4 units)
   - owner occupied                   $   2,532,045       34.27%     $    853,869        10.31%      $1,037,474        16.15%

Single-family homes (1-4 units)
   - non-owner occupied                  1,961,474        26.55%        1,589,092        19.19%         575,051         8.95%
Apartments (over 4 units)                  971,864        13.15%        1,367,327         1.51%         708,648        11.03%
Commercial                               1,923,095        26.03%        2,410,861        29.11%       2,045,811        31.85%
Land                                             -             -        2,059,677        24.88%       2,057,000        32.02%
                                     --------------    ----------    -------------    ----------    -------------    -----------

          Total                       $  7,388,478       100.00%      $ 8,280,826       100.00%      $6,423,984       100.00%
                                     ==============    ==========    =============    ==========    =============    ===========
</TABLE>

     As of December 31, 2004, the Partnership  held 28 loans secured by deeds of
trust. The following table sets forth the priorities,  asset  concentrations and
maturities of the secured loans held by the Partnership as of December 31, 2004.

        PRIORITIES, ASSET CONCENTRATIONS AND MATURITIES OF SECURED LOANS
                             As of December 31, 2004
<TABLE>
<S>                                                 <C>                              <C>                            <C>

                                                    # of Loans                       Amount                         Percent
                                                   -------------                   -------------                  ------------

1st Mortgages                                                21                     $ 5,937,736                        80.36%
2nd Mortgages                                                 7                       1,450,742                        19.64%
                                                   =============                   =============                  ============
      Total                                                  28                     $ 7,388,478                       100.00%

Maturing in 2005                                              3                       $ 817,184                        11.06%
Maturing in 2006                                              4                       1,872,944                        25.35%
Maturing in 2007                                              2                       1,246,754                        16.87%
Maturing after 12/31/07                                      19                       3,451,596                        46.72%
                                                   =============                   =============                  ============
      Total                                                  28                     $ 7,388,478                       100.00%

Average Secured Loan                                                                  $ 263,874                         3.57%
Largest Secured Loan                                                                    800,000                        10.83%
Smallest Secured Loan                                                                    11,621                         0.16%
Average Loan-to-Value based upon appraisals
  and prior liens at time of loan                                                                                      71.30%
</TABLE>

     The Partnership's  largest secured loan in the principal amount of $800,000
represents 10.83% of outstanding  secured loans and 8.69% of Partnership assets.
Larger  loans  sometimes  increase  above 10% of the secured  loan  portfolio or
Partnership assets as these amounts decrease due to limited partner  withdrawals
and loan payoffs.


                                       19
<PAGE>

ASSET QUALITY

     A consequence  of lending  activities is that  occasionally  losses will be
experienced  and that the  amount  of such  losses  will vary from time to time,
depending  upon the risk  characteristics  of the loan  portfolio as affected by
economic  conditions and the financial  experiences of borrowers.  Many of these
factors  are beyond the  control of the  general  partners.  There is no precise
method of predicting  specific  losses or amounts that ultimately may be charged
off on  particular  segments of the loan  portfolio,  especially in light of the
current economic environment.

     The conclusion that a loan may become  uncollectible,  in whole or in part,
is  a  matter  of  judgment.  Although  institutional  lenders  are  subject  to
requirements and regulations  that, among other things,  require them to perform
ongoing analyses of their portfolios,  loan-to-value ratios, reserves, etc., and
to obtain and maintain  current  information  regarding  their borrowers and the
securing properties, the Partnership is not subject to these regulations and has
not adopted certain of these practices.

     Instead,  the general partners,  in connection with the periodic closing of
the accounting  records of the  Partnership and the preparation of the financial
statements, determine whether the allowance for loan losses is adequate to cover
potential  loan losses of the  Partnership.  As of December 31, 2004 the general
partners have  determined  that the allowance for loan losses of $745,476 (8.17%
of net assets) and the allowance for real estate held for sale of $33,373 (0.37%
of net  assets)  is  adequate  in amount.  Because  of the  number of  variables
involved,  the  magnitude  of the  swings  possible  and the  general  partners'
inability to control many of these factors,  actual results may and do sometimes
differ significantly from estimates made by the general partners. As of December
31,  2004,  five  loans  were  delinquent  over  90  days  and/or  matured  with
outstanding principal of $1,049,730.

     The Partnership also makes loans requiring periodic disbursements of funds.
As of December 31, 2004 there were no such loans.  These loans include ground up
construction of buildings and loans for  rehabilitation of existing  structures.
Interest  on such loans is computed  at simple  interest  method and only on the
amounts disbursed on a daily basis.


Item 8 - Financial Statements and Supplementary Data


A - Financial Statements

     The following  financial  statements of Redwood Mortgage  Investors VII are
included in Item 8:

o Report of Independent Registered Public Accounting Firm
o Balance Sheets - December 31, 2004, and December 31, 2003
o Statements of Income for the years ended December 31, 2004, 2003 and 2002
o Statements of Changes in Partners' Capital for the years ended
  December 31, 2004, 2003 and 2002
o Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002
o Notes to Financial Statements


B - Financial Statement Schedules

     The following  financial  statement schedules of Redwood Mortgage Inventors
VII are included in Item 8.

o Schedule II  - Valuation and Qualifying Accounts
o Schedule IV - Mortgage Loans on Real Estate

     All  other  schedules  for  which  provision  is  made  in  the  applicable
accounting  regulations  of the  Securities  and  Exchange  Commission  are  not
required under the related instructions or are inapplicable,  and therefore have
been omitted.


                                       20
<PAGE>



                         REDWOOD MORTGAGE INVESTORS VII
                       (A CALIFORNIA LIMITED PARTNERSHIP)
                              FINANCIAL STATEMENTS
                           DECEMBER 31, 2004 AND 2003
                         AND FOR EACH OF THE THREE YEARS
                      IN THE PERIOD ENDED DECEMBER 31, 2004



                                       21
<PAGE>



                   TABLE OF CONTENTS

                                                                  Page No.
                                                               ---------------
Report of Independent Registered Public Accounting Firm              23

Balance Sheets                                                       24

Statements of Income                                                 25

Statements of Changes in Partners' Capital                           26

Statements of Cash Flows                                             27

Notes to Financial Statements                                        28

Supplemental Schedules

Schedule II -  Valuation and Qualifying Accounts                     40

Schedule IV - Mortgage Loans on Real Estate                          41
  Rule 12-29 Loans on Real Estate




                                       22
<PAGE>

                              ARMANINO McKENNA LLP
                          CERTIFIED PUBLIC ACCOUNTANTS
                         12667 Alcosta Blvd., Suite 500
                               San Ramon, CA 94583
                                 (925) 790-2600

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Partners
Redwood Mortgage Investors VII
Redwood City, California

     We have  audited  the  accompanying  balance  sheets  of  Redwood  Mortgage
Investors VII (a  California  limited  partnership)  as of December 31, 2004 and
2003 and the related statements of income, changes in partners' capital and cash
flows for each of the three years in the period ended  December 31, 2004.  These
financial  statements are the responsibility of Redwood Mortgage Investors VII's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

     We  conducted  our audits in  accordance  with the  standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain  reasonable  assurance about whether the
financial  statements  are  free  of  material  misstatement.  Redwood  Mortgage
Investors VII is not required to have, nor were we engaged to perform,  an audit
of  its  internal  control  over  financial   reporting.   Our  audits  included
consideration  of  internal  control  over  financial  reporting  as a basis for
designing audit  procedures that are appropriate in the  circumstances,  but not
for the  purpose  of  expressing  an  opinion  on the  effectiveness  of Redwood
Mortgage Investors VII's internal control over financial reporting. Accordingly,
we express no such opinion. An audit also includes  examining,  on a test basis,
evidence  supporting the amounts and  disclosures  in the financial  statements,
assessing the  accounting  principles  used and  significant  estimates  made by
management,  and evaluating the overall  financial  statement  presentation.  We
believe that our audits provide a reasonable basis for our opinion.

     In our opinion,  the financial statements referred to above present fairly,
in all material  respects,  the financial position of Redwood Mortgage Investors
VII as of December 31, 2004 and 2003 and the results of its  operations  and its
cash flows for each of the three years in the period ended  December 31, 2004 in
conformity with accounting principles generally accepted in the United States of
America.

     Our  audits  were  conducted  for the  purpose of forming an opinion on the
basic financial  statements taken as a whole.  Schedules II and IV are presented
for purposes of  additional  analysis  and are not a required  part of the basic
financial  statements.  Such  information  has been  subjected  to the  auditing
procedures  applied in the audits of the basic financial  statements and, in our
opinion,  is fairly  stated in all  material  respects  in relation to the basic
financial statements taken as a whole.




                                                     ARMANINO McKENNA  LLP
San Ramon, California
February 14, 2005


                                       23
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                                 Balance Sheets
                           December 31, 2004 and 2003


                                     ASSETS
<TABLE>
<S>                                                                           <C>                 <C>

                                                                              2004                2003
                                                                        -----------------    ---------------

Cash and cash equivalents                                                $       346,393     $      321,114
                                                                        -----------------    ---------------

Loans
   Loans, secured by deeds of trust                                            7,388,478          8,280,826
   Loans, unsecured, net of discount of $107,433 and
     $128,920 in 2004 and 2003, respectively                                     238,484            232,551
   Allowance for loan losses                                                   (745,476)          (680,469)
                                                                        -----------------    ---------------
     Net loans                                                                 6,881,486          7,832,908
                                                                        -----------------    ---------------

Interest and other receivables
   Accrued interest and late fees                                                190,105            489,995
   Advances on loans                                                               8,188              6,484
                                                                        -----------------    ---------------
     Total interest and other receivables                                        198,293            496,479
                                                                        -----------------    ---------------

Real estate held for sale, net                                                 1,782,182            633,053
                                                                        -----------------    ---------------

     Total assets                                                        $     9,208,354      $   9,283,554
                                                                        =================    ===============

                        LIABILITIES AND PARTNERS' CAPITAL

Liabilities
   Line of credit                                                        $             -      $     200,000
   Accounts payable                                                                4,951              4,102
   Payable to affiliate                                                           74,987             51,288
                                                                        -----------------    ---------------
     Total liabilities                                                            79,938            255,390
                                                                        -----------------    ---------------

Partners' capital
   Limited partners' capital, subject to redemption                            9,116,443          9,016,191
   General partners' capital                                                      11,973             11,973
                                                                        -----------------    ---------------
     Total partners' capital                                                   9,128,416          9,028,164
                                                                        -----------------    ---------------

     Total liabilities and  partners' capital                            $     9,208,354      $   9,283,554

                                                                        =================    ===============
</TABLE>








The accompanying notes are an integral part of these financial statements.



                                       24
<PAGE>


                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                              Statements of Income
              For the Years Ended December 31, 2004, 2003 and 2002

<TABLE>
<S>                                                                    <C>              <C>              <C>


                                                                       2004             2003             2002
                                                                   -------------    -------------    -------------
Revenues
   Interest on loans                                                $   818,527      $   748,625      $ 1,037,717
   Late fees                                                             19,822           24,053           24,920
   Other                                                                 29,925            9,602           15,549
                                                                   -------------    -------------    -------------
                                                                        868,274          782,280        1,078,186
                                                                   -------------    -------------    -------------
Expenses
   Mortgage servicing fees                                               81,442           73,062          163,531
   Interest expense                                                      10,804            8,972           54,724
   Clerical costs from Redwood Mortgage Corp.                            17,826           23,014           30,572
   Asset management fees                                                 34,073           34,011           34,869
   Provisions for (recovery of) losses on loans
     and real estate held for sale                                       65,007         (18,299)         (20,039)
   Professional services                                                 49,343           43,752           40,158
   Other                                                                 31,133           25,127           10,889
                                                                   -------------    -------------    -------------
                                                                        289,628          189,639          314,704
                                                                   -------------    -------------    -------------

Net income                                                          $   578,646      $   592,641     $    763,482
                                                                   =============    =============    =============

Net income
   General partners (1%)                                            $     5,786      $     5,926     $      7,635
   Limited partners (99%)                                               572,860          586,715          755,847
                                                                   -------------    -------------    -------------

                                                                    $   578,646      $   592,641     $    763,482
                                                                   =============    =============    =============

Net income per $1,000 invested by limited
  partners for entire period
   Where income is reinvested and compounded                        $        65      $        67     $         85
   Where partner receives income in monthly
     distributions                                                  $        63      $        65     $         82
</TABLE>














The accompanying notes are an integral part of these financial statements.




                                       25
<PAGE>


                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                   Statements of Changes in Partners' Capital
              For the Years Ended December 31, 2004, 2003 and 2002


                                   Limited          General           Total
                                   Partners'        Partners'        Partners'
                                    Capital          Capital          Capital
                                --------------    -------------   --------------

Balances at December 31, 2001     $  9,420,268      $    11,978      $ 9,432,246

   Net income                          755,847            7,635          763,482

   Early withdrawal penalties         (11,619)                -         (11,619)

   Partners' withdrawals           (1,124,206)          (7,635)      (1,131,841)
                                --------------    -------------   --------------

Balances at December 31, 2002        9,040,290           11,978        9,052,268

   Net income                          586,715            5,926          592,641

   Early withdrawal penalties          (1,815)                -          (1,815)

   Partners' withdrawals             (608,999)          (5,931)        (614,930)
                                --------------    -------------   --------------

Balances at December 31, 2003        9,016,191           11,973        9,028,164

   Net income                          572,860            5,786          578,646

   Early withdrawal penalties          (2,741)                -          (2,741)

   Partners' withdrawals             (469,867)          (5,786)        (475,653)
                                --------------    -------------   --------------

Balances at December 31, 2004     $  9,116,443      $    11,973      $ 9,128,416
                                ==============    =============   ==============







The accompanying notes are an integral part of these financial statements.





                                       26
<PAGE>



                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                            Statements of Cash Flows
              For the Years Ended December 31, 2004, 2003 and 2002
<TABLE>
<S>                                                                        <C>               <C>              <C>


                                                                           2004              2003             2002
                                                                       --------------    -------------    --------------
Cash flows from operating activities
   Net income                                                           $    578,646     $    592,641      $    763,482
   Adjustments to reconcile net income to
     net cash provided by operating activities
      Provisions for (recovery of) losses on loans and real estate            65,007         (18,299)          (20,039)
      Early withdrawal penalty credited to income                            (2,741)          (1,815)          (11,619)
      Amortization of discount on unsecured loans                           (21,487)         (21,487)                 -
      Change in operating assets and liabilities
        Loans, unsecured                                                      15,554            5,706            45,292
        Accrued interest and late fees                                     (252,153)        (273,744)          (73,456)
        Advances on loans                                                    (5,987)          (7,767)          (47,216)
        Accounts payable                                                         849            1,509           (8,702)
        Payable to affiliate                                                  23,699           19,112            28,860
        Deferred interest                                                          -         (37,704)            35,382
                                                                       --------------    -------------    --------------
Net cash provided by operating activities                                    401,387          258,152           711,984
                                                                       --------------    -------------    --------------

Cash flows from investing activities
   Principal collected on loans                                            3,517,558        2,556,852         4,569,574
   Loans originated                                                      (3,821,719)      (4,349,527)       (1,447,329)
   Payments for real estate                                                     (17)                -          (11,033)
   Proceeds from disposition of real estate                                  603,723                -                 -
   Payments on investment in limited liability company                             -        (149,693)         (116,354)
   Proceeds from investment in limited liability company                           -        1,362,415                 -
                                                                       --------------    -------------    --------------
Net cash provided by (used in) investing activities                          299,545        (579,953)         2,994,858
                                                                       --------------    -------------    --------------

Cash flows from financing activities
   Borrowings (repayments) on line of credit, net                          (200,000)          200,000       (1,907,000)
   Partners' withdrawals                                                   (475,653)        (614,930)       (1,131,841)
                                                                       --------------    -------------    --------------
Net cash used in financing activities                                      (675,653)        (414,930)       (3,038,841)
                                                                       --------------    -------------    --------------

Net increase (decrease) in cash and cash equivalents                          25,279        (736,731)           668,001

Cash and cash equivalents at beginning of year                               321,114        1,057,845           389,844
                                                                       --------------    -------------    --------------

Cash and cash equivalents at end of year                                $    346,393     $    321,114       $ 1,057,845
                                                                       ==============    =============    ==============

Supplemental disclosures of cash flow information
   Cash payments for interest                                           $     10,804     $      8,972       $    54,724
</TABLE>






The accompanying notes are an integral part of these financial statements.



                                       27
<PAGE>



                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          Notes to Financial Statements
                        December 31, 2004, 2003 and 2002


1.     Organization and General

     Redwood Mortgage Investors VII, (the "Partnership") is a California limited
partnership  organized  on June 30,  1989.  The general  partners are Michael R.
Burwell, an individual,  and GYMNO Corporation,  a California  corporation.  The
Partnership  was  organized  to engage in business as a mortgage  lender for the
primary  purpose of making loans  secured by deeds of trust on  California  real
estate.  Loans are being  arranged and serviced by Redwood  Mortgage  Corp.,  an
affiliate of the general partners.

       Term of the Partnership

     The  Partnership  is scheduled  to  terminate on December 31, 2029,  unless
sooner terminated as provided in the Partnership Agreement.


2.     Summary of Significant Accounting Policies

       Management estimates

     The  preparation  of financial  statements  in conformity  with  accounting
principles   generally  accepted  in  the  United  States  of  America  requires
management  to make  estimates  and  assumptions  about the reported  amounts of
assets and liabilities, and disclosures of contingent assets and liabilities, at
the dates of the financial  statements and the reported  amounts of revenues and
expenses during the reported periods.  Such estimates relate  principally to the
determination  of the  allowance  for loan losses,  including  the  valuation of
impaired  loans and the valuation of real estate held for sale.  Actual  results
could differ significantly from these estimates.

       Loans, secured by deeds of trust

     Loans generally are stated at their  outstanding  unpaid principal  balance
with interest thereon being accrued as earned.

     If the probable  ultimate  recovery of the carrying  amount of a loan, with
due  consideration  for the fair value of  collateral,  is less than amounts due
according to the contractual  terms of the loan agreement,  and the shortfall in
the  amounts  due are not  insignificant,  the  carrying  amount  of the loan is
reduced  to the  present  value of future  cash flows  discounted  at the loan's
effective interest rate. If a loan is collateral dependent,  it is valued at the
estimated fair value of the related collateral.

     If events and or changes in circumstances  cause management to have serious
doubts about the further  collectibility of the contractual payments, a loan may
be  categorized  as impaired and interest is no longer  accrued.  Any subsequent
payments on impaired loans are applied to reduce the  outstanding  loan balances
including  accrued  interest and advances.  At December 31, 2004 and 2003, there
was one loan categorized as impaired by the Partnership of $96,710. In addition,
the impaired loan had accrued  interest and advances  totaling $6,936 and $7,977
at December 31, 2004 and 2003, respectively.  The reduction in carrying value of
the impaired loan of $14,596 at December 31, 2003, was included in the allowance
for loan losses.  In 2004, it was determined  that a reduction in carrying value
was no longer required on this loan. The average recorded investment in impaired
loans was $96,710,  $96,710 and  $493,074 for December 31, 2004,  2003 and 2002,
respectively.




                                       28
<PAGE>



                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          Notes to Financial Statements
                        December 31, 2004, 2003 and 2002


2.     Summary of Significant Accounting Policies (continued)

       Loans, secured by deeds of trust (continued)

     At December 31, 2004 and 2003, the  Partnership had five and six loans past
maturity or past due 90 days or more,  including  one  impaired  loan,  totaling
$1,049,730  and  $2,356,491,  respectively.  In addition,  accrued  interest and
advances on these loans  totaled  $60,233 and  $408,972 at December 31, 2004 and
2003, respectively.  The Partnership does not consider four of these loans to be
impaired because there is sufficient  collateral to cover the amount outstanding
to the  Partnership  and is still accruing  interest on these loans. At December
31, 2004 and 2003, as presented in Note 11, the average loan to appraised  value
of security based upon appraised  values and prior  indebtedness at the time the
loans  were  consummated  was 71.30% and  60.79%,  respectively.  When loans are
considered  impaired,  the  allowance  is updated  to reflect  the change in the
valuation of  collateral  security.  However,  a low loan to value ratio has the
tendency to minimize reductions for impairment.

     During 2003, the  Partnership  restructured  two previously  impaired loans
into one existing loan with a lower interest rate. The amount  restructured  was
$579,005.

       Allowance for loan losses

     Loans and the related accrued interest, late fees and advances are analyzed
on a continuous  basis for  recoverability.  Delinquencies  are  identified  and
followed as part of the loan system.  Delinquencies  are  determined  based upon
contractual  terms.  A provision is made for loan losses to adjust the allowance
for loan losses to an amount  considered by management to be adequate,  with due
consideration  to  collateral  value,  to provide  for  unrecoverable  loans and
receivables,  including impaired loans, other loans, accrued interest, late fees
and advances on loans and other accounts receivable (unsecured). The Partnership
charges  off  uncollectible  loans  and  related  receivables  directly  to  the
allowance account once it is determined that the full amount is not collectible.

     The  composition  of the  allowance for loan losses as of December 31, 2004
and 2003 was as follows:

                                       2004             2003
                                  -------------    --------------
Impaired loans                     $        -       $    14,596
Specified loans                       290,464           321,263
General                               231,443           236,984
Unsecured loans                       223,569           107,626
                                  -------------    --------------
                                   $  745,476       $   680,469
                                  =============    ==============






                                       29
<PAGE>




                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          Notes to Financial Statements
                        December 31, 2004, 2003 and 2002


2.     Summary of Significant Accounting Policies (continued)

       Allowance for loan losses (continued)

       Activity in the allowance for loan losses is as follows for the years
ended December 31:

                              2004            2003            2002
                          ------------    ------------   -------------
Beginning balance           $ 680,469       $ 791,882        $887,578
Provision for loan losses      65,007               -          20,394
Recoveries                          -        (18,299)        (40,433)
Restructures/transfers              -        (50,083)        (64,210)
Write-offs                          -        (43,031)        (11,447)
                          ------------    ------------   -------------

                            $ 745,476       $ 680,469      $  791,882
                          ============    ============   =============

       Cash and cash equivalents

     The  Partnership  considers all highly liquid  financial  instruments  with
maturities  of  three  months  or  less  at the  time  of  purchase  to be  cash
equivalents.

       Real estate held for sale

     Real estate held for sale includes real estate acquired through foreclosure
and is stated  at the lower of the  recorded  investment  in the loan,  plus any
senior  indebtedness,  or at the property's estimated fair value, less estimated
costs to sell.

     The Partnership  periodically compares the carrying value of real estate to
expected  future  undiscounted  cash  flows for the  purpose  of  assessing  the
recoverability  of the recorded  amounts.  If the carrying  value exceeds future
undiscounted cash flows, the assets are reduced to fair value.  During 2003, the
Partnership  transferred  $50,083  from the  allowance  for loan  losses  to the
allowance for losses on real estate held for sale.

       Investment in limited liability company

     Investment in limited  liability  company is accounted for using the equity
method.  In 2003, the Company had a 34% interest in the Stockton Street Property
Company, LLC (see Note 6).

       Income taxes

     No  provision  for federal and state income taxes (other than an $800 state
minimum  tax) is made in the  financial  statements  since  income taxes are the
obligation of the partners if and when income taxes apply.

       Net income per $1,000 invested

     Amounts  reflected  in the  statements  of income as net  income per $1,000
invested by limited  partners  for the entire  period are amounts  allocated  to
limited partners who had their investment throughout the period and have elected
to either leave their  earnings to compound or have elected to receive  periodic
distributions  of their net income.  Individual  income is allocated  each month
based on the limited partners' pro rata share of partners' capital.  Because the
net income percentage  varies from month to month,  amounts per $1,000 will vary
for those  individuals who made or withdrew  investments  during the period,  or
select other options.



                                       30
<PAGE>



                         REDWOOD MORTGAGE INVESTORS VII
                        (A California Limted Partnership)
                          Notes to Financial Statements
                        December 31, 2004, 2003 and 2002


2.     Summary of Significant Accounting Policies (continued)

       Late fee revenue

     Late fees are generally  charged at 6% of the monthly  installment  payment
past due. During 2004,  2003 and 2002, late fee revenue of $19,822,  $24,053 and
$24,920,  respectively,  was recorded. The Partnership has a late fee receivable
at December 31, 2004 and 2003 of $4,513 and $24,118.

      Recently issued accounting pronouncements

     In December 2003, the American  Institute of Certified  Public  Accountants
(AICPA)  Accounting  Standards  Executive  Committee (AcSEC) issued Statement of
Position 03-03,  "Accounting for Certain Loans or Debt Securities  Acquired in a
Transfer"(SOP  03-3).  SOP 03-03 is effective for loans acquired in fiscal years
beginning  after December 15, 2004,  with early adoption  encouraged.  SOP 03-03
addresses  accounting for differences  between  contractual  cash flows and cash
flows expected to be collected from an investor's initial investment in loans or
debt securities acquired in a transfer if those differences are attributable, at
least in part,  to credit  quality.  It  includes  loans  acquired  in  business
combinations   and   applies   to  all   nongovernmental   entities,   including
not-for-profit organizations.  The SOP does not apply to loans originated by the
entity.  The implementation of SOP 03-03 is not expected to have any significant
effect on the Partnership.


3.     Other Partnership Provisions

     The Partnership is a California limited partnership. The rights, duties and
powers of the general and limited  partners of the  Partnership  are governed by
the limited  partnership  agreement and Sections 15611 et seq. of the California
Corporations Code.

     The general partners are in complete  control of the Partnership  business,
subject to the voting rights of the limited partners on specified  matters.  Any
one of the general  partners acting alone has the power and authority to act for
and bind the Partnership.

     A majority of the outstanding  limited  partnership  interests may, without
the permission of the general partners,  vote to: (i) terminate the partnership,
(ii) amend the limited  partnership  agreement,  (iii) approve or disapprove the
sale of all or  substantially  all of the  assets  of the  Partnership  and (iv)
remove or replace one or all of the general partners.

     The approval of the majority of limited partners is required to elect a new
general partner to continue the Partnership business where there is no remaining
general  partner after a general  partner  ceases to be a general  partner other
than by removal.

       Election to receive monthly, quarterly or annual distributions

     At subscription,  investors elected either to receive monthly, quarterly or
annual distributions of earnings allocations,  or to allow earnings to compound.
Subject to certain  limitations,  a compounding investor may subsequently change
his  election,  but  an  investor's  election  to  have  cash  distributions  is
irrevocable.

       Profits and losses

     Profits and losses are allocated  among the limited  partners  according to
their respective capital accounts monthly after 1% of the profits and losses are
allocated to the general partners.



                                       31
<PAGE>




                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          Notes to Financial Statements
                        December 31, 2004, 2003 and 2002


3.     Other Partnership Provisions (continued)

       Liquidity, capital withdrawals and early withdrawals

     There are substantial  restrictions on transferability of Partnership units
and accordingly an investment in the Partnership is not liquid. Limited partners
have no right to withdraw from the  Partnership or to obtain the return of their
capital account for at least one year from the date of purchase of units.

     In order to provide a certain  degree of liquidity to the limited  partners
after the one-year  period,  limited  partners may withdraw all or part of their
capital accounts from the Partnership in four quarterly  installments  beginning
on the last day of the  calendar  quarter  following  the  quarter  in which the
notice of withdrawal is given,  subject to a 10% early withdrawal  penalty.  The
10% penalty is  applicable  to the amount  withdrawn  early and will be deducted
from the capital account.

     After five years from the date of purchase of the units,  limited  partners
have the  right to  withdraw  from the  Partnership,  on an  installment  basis.
Generally this is done over a five-year period in twenty quarterly installments.
Once a limited  partner has been in the  Partnership  for the minimum  five-year
period,  no penalty will be imposed if  withdrawal  is made in twenty  quarterly
installments  or longer.  Notwithstanding  the five-year (or longer)  withdrawal
period,  the general  partners may liquidate all or part of a limited  partner's
capital account in four quarterly  installments beginning on the last day of the
calendar  quarter  following  the quarter in which the notice of  withdrawal  is
given. This withdrawal is subject to a 10% early withdrawal  penalty  applicable
to any sums withdrawn prior to the time when such sums could have been withdrawn
without penalty.

     The Partnership will not establish a reserve from which to fund withdrawals
and,  accordingly,  the  Partnership's  capacity  to return a limited  partner's
capital  account is restricted to the  availability  of  Partnership  cash flow.
Furthermore,  no more than 20% of the total limited  partners'  capital accounts
outstanding  at the  beginning  of any  year,  shall be  liquidated  during  any
calendar year.


 4.    General Partners and Related Parties

     The  following are  commissions  and fees which will be paid to the general
partners and affiliates:

       Mortgage brokerage commissions

     For fees in connection with the review, selection, evaluation,  negotiation
and extension of loans, affiliates of the general partners may collect an amount
equivalent to 12% of the loaned amount until 6 months after the termination date
of the offering. Thereafter, loan brokerage commissions (points) will be limited
to an amount not to exceed 4% of the total Partnership assets per year. The loan
brokerage  commissions are paid by the borrowers and thus, are not an expense of
the Partnership.  During 2004, 2003 and 2002, loan brokerage commissions paid by
the borrowers to Redwood  Mortgage Corp.  were $93,465 and $111,927 and $24,661,
respectively.




                                       32
<PAGE>


                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          Notes to Financial Statements
                        December 31, 2004, 2003 and 2002


 4.    General Partners and Related Parties (continued)

       Mortgage servicing fees

     Monthly  mortgage  servicing  fees of up to 1/8 of 1% (1.5%  annual) of the
unpaid principal are paid to Redwood Mortgage Corp., an affiliate of the general
partners,  based on the unpaid principal balance of the loan portfolio,  or such
lesser amount as is reasonable  and customary in the  geographic  area where the
property  securing  the  mortgage  is  located.  Once a loan is  categorized  as
impaired, mortgage servicing fees are no longer accrued. Additional service fees
are  recorded  upon the receipt of any  subsequent  payments on impaired  loans.
Mortgage servicing fees of $81,442, $73,062 and $163,531 were incurred for 2004,
2003 and 2002,  respectively.  The Partnership has a payable to Redwood Mortgage
Corp.  for servicing  fees of $74,987 and $51,288 at December 31, 2004 and 2003,
respectively.

       Asset management fee

     The general  partners  receive monthly fees for managing the  Partnership's
loan  portfolio and operations of up to 1/32 of 1% of the "net asset value" (3/8
of 1%  annually).  Asset  management  fees of $34,073,  $34,011 and $34,869 were
incurred for 2004, 2003 and 2002, respectively.

       Other fees

     The  Partnership  Agreement  provides for other fees such as  reconveyance,
mortgage  assumption and mortgage  extension fees. Such fees are incurred by the
borrowers and are paid to parties related to the general partners.

       Operating expenses

     Redwood  Mortgage Corp. is reimbursed by the  Partnership for all operating
expenses actually incurred by it on behalf of the Partnership, including without
limitation,   out-of-pocket   general   and   administration   expenses  of  the
Partnership,  accounting  and audit fees,  legal fees and expenses,  postage and
preparation  of  reports  to  limited  partners.  During  2004,  2003 and  2002,
operating  expenses totaling $17,826,  $23,014 and $30,572,  respectively,  were
reimbursed to Redwood Mortgage Corp.

5.     Real Estate Held for Sale

     In December,  2004, the Partnership acquired land through a deed in lieu of
foreclosure.  At this date,  the  Partnership's  investment  totaled  $1,752,836
including accrued interest and advances.  Management believes the full amount of
the  Partnership's  investment in this  property will be recovered  based on its
current estimate of the property's fair value.

     During 2004, the Partnership  sold real estate with an original  investment
of  $1,200,518,  and a carrying  value of $586,713  for  $586,713.  The original
investment  in this  property  had been  reduced in prior years to  management's
estimate of the ultimate realizable value of the property.




                                       33
<PAGE>


                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          Notes to Financial Statements
                        December 31, 2004, 2003 and 2002


5.     Real Estate Held for Sale (continued)

     The following  schedule  reflects the costs of real estate acquired through
foreclosure  and the recorded  reductions  to estimated  fair values,  including
estimated costs to sell as of December 31, 2004 and 2003:

                                        2004              2003
                                    --------------    --------------

Costs of properties                    $1,815,555        $1,263,222
Reduction in value                       (33,373)         (630,169)
                                    --------------    --------------

  Real estate held for sale, net       $1,782,182         $ 633,053
                                    ==============    ==============


6.     Investment in Limited Liability Company

     As a result of acquiring real property through foreclosure, the Partnership
transferred its interest  (principally land and building) to a limited liability
company  ("LLC"),  Stockton Street Property Company LLC  ("Stockton"),  which is
owned 34% by the  Partnership  and 66% by an affiliate.  Development  costs were
capitalized during construction; thus, there was no income or expense recognized
by Stockton  during 2002 and a portion of 2003.  During 2003,  the LLC completed
construction  and the property was sold.  The  Partnership  recognized a loss of
$42,518 during 2003 related to this property.


7.     Bank Line of Credit

     The  Partnership has a bank line of credit secured by its loan portfolio of
up to $2,500,000 at .25% over prime. There were no balances  outstanding on this
line as of  December  31,  2004 and  2003,  and the  interest  rate was 5.25% at
December 31, 2004 and 4.25% at December 31,  2003.  This line of credit  expires
December  10,  2007 and  requires  the  Partnership  to meet  certain  financial
covenants.  As of December 31, 2004 and 2003, the  Partnership was in compliance
with all loan covenants.





                                       34
<PAGE>



                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          Notes to Financial Statements
                        December 31, 2004, 2003 and 2002


8.     Income Taxes

     The following  reflects a reconciliation  of partners' capital reflected in
the financial statements to the tax basis of the Partnership capital:

                                                     2004               2003
                                                --------------    --------------

Partners' capital per financial statements       $ 9,128,416      $   9,028,164
Allowance for loan losses                            745,476            680,469
Allowance for real estate losses                      33,373            630,169
                                                --------------    --------------

                  Partners' capital tax basis    $ 9,907,265       $ 10,338,802
                                                ==============    ==============

     In 2004 and 2003,  approximately  69% of taxable  income was  allocated  to
tax-exempt organizations (i.e., retirement plans).


9.     Fair Value of Financial Instruments

     The following  methods and assumptions were used to estimate the fair value
of financial instruments:

     (a) Cash and cash  equivalents - The carrying amount equals fair value. All
amounts, including interest bearing, are subject to immediate withdrawal.

     (b) Secured  loans had a carrying  value of  $7,388,478  and  $8,280,826 at
December  31,  2004 and 2003,  respectively.  The fair  value of these  loans of
$7,531,668 and $8,159,401, respectively, was estimated based upon projected cash
flows discounted at the estimated  current interest rates at which similar loans
would be made. The applicable amount of the allowance for loan losses along with
accrued  interest and advances  related  thereto  should also be  considered  in
evaluating the fair value versus the carrying value.


10.    Non-cash Transactions

     During 2004,  the  Partnership  foreclosed  on property (see Note 5), which
resulted  in an  increase  in real  estate  held  for sale of  $1,752,836  and a
decrease in loans  receivable,  accrued  interest  and  advances of  $1,196,509,
$552,044 and $4,283, respectively.

     During 2003,  the  Partnership  restructured  two loans that resulted in an
increase to loans  receivable of $107,198 and a decrease to accrued interest and
late fees and advances of $88,685 and $18,513, respectively.





                                       35
<PAGE>



                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          Notes to Financial Statements
                        December 31, 2004, 2003 and 2002


11.    Asset Concentrations and Characteristics

     Most loans are secured by recorded deeds of trust. At December 31, 2004 and
2003,  there were 28 and 23 secured loans  outstanding,  respectively,  with the
following characteristics:

                                                     2004               2003
                                               ---------------     -------------

Number of secured loans outstanding                       28                23
Total secured loans outstanding                  $ 7,388,478       $ 8,280,826

Average secured loan outstanding                 $   263,874       $   360,036
Average secured loan as percent of total               3.57%             4.35%
 secured loans
Average secured loan as percent
 of partners' capital                                  2.89%             3.99%

Largest secured loan outstanding                 $   800,000       $ 1,000,000
Largest secured loan as percent of total              10.83%            12.08%
 secured loans
Largest secured loan as percent
 of partners' capital                                  8.76%            11.08%
Largest secured loan as percent
 of total assets                                       8.69%            10.77%

Number of counties where security
 is located (all California)                              13                 8

Largest percentage of loans in one county             24.64%            44.11%

Average secured loan to appraised value
 of security based on appraised values and
 prior liens at time loan was consummated             71.30%            60.79%

Number of secured loans in foreclosure status              1                 -
Amount of secured loans in foreclosure           $   776,228       $         -







                                       36
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          Notes to Financial Statements
                        December 31, 2004, 2003 and 2002


11.    Asset Concentrations and Characteristics (continued)

     The  following  categories  of secured loans were held at December 31, 2004
and 2003:
<TABLE>
<S>          <C>                                                         <C>                 <C>

                                                                         2004                2003
                                                                    ----------------    ----------------

             First trust deeds                                        $   5,937,736       $   3,733,346
             Second trust deeds                                           1,450,742           3,872,480
             Third trust deeds                                                    -             675,000
                                                                    ----------------    ----------------
                  Total loans                                             7,388,478           8,280,826
             Prior liens due other lenders at time of loan                1,944,172           4,319,281
                                                                    ----------------    ----------------

                  Total debt                                          $   9,332,650       $  12,600,107
                                                                    ================    ================

             Appraised property value at time of loan                 $  13,089,113       $  20,728,514

                  Total loans as percent of appraisals                       71.30%              60.79%

             Loans by type of property
               Owner occupied homes                                   $   2,532,045       $     853,869
               Non-owner occupied homes                                   1,961,474           1,589,092
               Apartments                                                   971,864           1,367,327
               Commercial                                                 1,923,095           2,410,861
               Land                                                               -           2,059,677
                                                                    ----------------    ----------------

                                                                      $   7,388,478       $   8,280,826
                                                                    ================    ================
</TABLE>

     The  interest  rates on these loans ranged from 6.50% to 10.50% at December
31, 2004 and 6.125% to 11.50% at December 31, 2003.

     Scheduled  maturity  dates of secured  loans as of December 31, 2004 are as
follows:

                     Year Ending December 31,
             -----------------------------------------

                               2005                          $   817,184
                               2006                            1,872,944
                               2007                            1,246,754
                               2008                              198,272
                               2009                            3,041,833
                            Thereafter                           211,491
                                                          ---------------

                              Total                          $ 7,388,478
                                                          ===============


     The scheduled  maturities for 2005 above include  approximately  $64,850 in
two loans which were past maturity at December 31, 2004. None of these loans had
interest  payments  categorized as delinquent  over 90 days.  Occasionally,  the
Partnership  allows  borrowers  to  continue  to make the  payments on debt past
maturity for periods of time.



                                       37
<PAGE>

                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          Notes to Financial Statements
                        December 31, 2004, 2003 and 2002


11.    Asset Concentrations and Characteristics (continued)

     At times, the Partnership's  cash deposits exceed federally insured limits.
Management  believes  deposits are  maintained in financially  secure  financial
institutions.

     The Partnership had a substantial amount of its loan receivable balance due
on two loans from one borrower in 2004 and 2003.  This  borrower  accounted  for
approximately  17% and 15% of the secured  loan balance at December 31, 2004 and
2003, respectively. This borrower accounted for approximately 34%, 12% and 7% of
interest  on loans  for the  years  ended  December  31,  2004,  2003 and  2002,
respectively.  The value of  collateral  securing  these loans was less than the
principal  balance due under the loans.  Redwood  Mortgage Corp. has provided an
indemnity  to the  Partnership  whereby  it has  agreed  to  indemnify  and hold
harmless the Partnership from any expenses or losses incurred by the Partnership
by reason of the Partnership's  inability to collect all principal due under the
loans after the Partnership has exhausted all reserves set aside for these loans
and  all  remedies  available  to it  including  foreclosure  of the  underlying
collateral.  Therefore,  these loans are not considered  impaired solely because
the  value of the  collateral  securing  the  loans is less  than the  principal
balance  due to the  Partnership.  Neither of these loans is past due 90 days or
more on interest payments nor are they past maturity.

     The  Partnership  also has 21% and 12% of its loan  receivable  balance due
from two and one  borrowers at December 31, 2004 and 2003,  respectively.  These
borrowers accounted for approximately 19%, 1% and 0% of interest revenue for the
years ended December 31, 2004, 2003 and 2002, respectively.


12.    Commitments and Contingencies

       Workout agreements

     The Partnership has negotiated various  contractual workout agreements with
borrowers  whose  loans  are  past  maturity  or who are  delinquent  in  making
payments.  The  Partnership  is not  obligated  to fund  additional  money as of
December 31, 2004. As of December 31, 2004 the  Partnership had four loans under
workout agreements totaling $260,919.

       Construction / rehabilitation loans

     The Partnership makes construction and  rehabilitation  loans which are not
fully disbursed at loan inception. The Partnership has approved the borrowers up
to a maximum loan balance;  however,  disbursements are made periodically during
completion  phases of the construction or  rehabilitation or at such other times
as required  under the loan  documents.  At  December  31,  2004,  there were no
undisbursed  loan  funds.  The  Partnership  does not  maintain a separate  cash
reserve to hold the undisbursed obligations, which are intended to be funded.

       Legal proceedings

     The  Partnership is involved in various legal actions arising in the normal
course of business.  In the opinion of management,  such matters will not have a
material effect upon the financial position of the Partnership.





                                       38
<PAGE>


                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                          Notes to Financial Statements
                        December 31, 2004, 2003 and 2002


13.   Selected Financial Information (Unaudited)
<TABLE>
<S>    <C>                                            <C>            <C>             <C>            <C>              <C>

                                                                        Calendar Quarter
                                                    ----------------------------------------------------------

                                                      First          Second          Third          Fourth           Annual
                                                    -----------    -----------    ------------    ------------    -------------

       Revenues
           2004                                       $217,654       $207,404        $215,309        $227,907         $868,274
           ----
           2003                                       $173,306       $187,186        $192,171        $229,617         $782,280
           ----

       Expenses
           2004                                        $77,558        $68,959         $65,976         $77,135         $289,628
           ----
           2003                                        $29,061        $21,330         $50,959         $88,289         $189,639
           ----

       Net income allocated to general partners
           2004                                         $1,401         $1,384          $1,493          $1,508           $5,786
           ----
           2003                                         $1,442         $1,659          $1,412          $1,413           $5,926
           ----

       Net income allocated to limited partners
           2004                                       $138,695       $137,061        $147,840        $149,264         $572,860
           ----
           2003                                       $142,803       $164,197        $139,800        $139,915         $586,715
           ----

       Net income per $1,000 invested
           where income is
             Compounded
               2004                                        $15            $15             $16             $19              $65
               ----
               2003                                        $16            $16             $16             $19              $67
               ----

             Withdrawn
               2004                                        $15            $15             $16             $17              $63
               ----
               2003                                        $16            $16             $16             $17              $65
               ----
</TABLE>









                                       39
<PAGE>


                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                                   Schedule II
              Valuation and Qualifying Accounts for the years ended
                        December 31, 2004, 2003, and 2002

<TABLE>
<S>             <C>                            <C>             <C>               <C>                 <C>                  <C>

                                               Col B.              Col. C - Additions                                     Col E.
                                                              ------------------------------
                Col A.                       Balance at        Charged to        Charged                                 Balance
                                              Beginning        Costs and         to Other            Col. D               at End
              Description                     of Period         Expenses         Accounts          Deductions           of Period
----------------------------------------    --------------    -------------    -------------     ---------------      --------------

Year Ended December 31, 2002

Deducted from asset accounts

Allowance for loan losses                    $   887,578       $ (20,039)        $(64,210)  (b)     $ (11,447)  (a)     $   791,882

Cumulative write-down of
real estate held for sale (REO)              $   380,056       $        0        $ 200,030  (b)     $        -          $   580,086
                                            --------------    -------------    -------------     ---------------      --------------

                                             $ 1,267,634       $ (20,039)        $ 135,820          $ (11,447)          $ 1,371,968
                                            ==============    =============    =============     ===============      ==============

Year Ended December 31, 2003

Deducted from asset accounts

Allowance for doubtful accounts              $   791,882       $ (68,382)        $       -          $ (43,031)  (a)     $   680,469

Cumulative write-down of
real estate held for sale (REO)              $   580,086       $   50,083                -                   -          $   630,169
                                            --------------    -------------    -------------     ---------------      --------------

                                             $ 1,371,968       $ (18,299)        $       -          $ (43,031)          $ 1,310,638
                                            ==============    =============    =============     ===============      ==============

Year Ended December 31, 2004

  Deducted from asset accounts

     Allowance for doubtful accounts         $   680,469       $   65,007        $       -          $        -          $   745,476

     Cumulative write-down of
      real estate held for sale (REO)            630,169                -                -           (596,796)  (c)          33,373
                                            --------------    -------------    -------------     ---------------      --------------

                                             $ 1,310,638       $   65,007        $       -          $(596,796)          $   778,849
                                            ==============    =============    =============     ===============      ==============
</TABLE>



Note (a) - Represents write offs of loans

Note (b) - Represents restructures

Note (c) - Represents sales of REO



                                       40
<PAGE>
                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                                   Schedule IV
                          Mortgage Loans on Real Estate
                         Rule 12-29 Loans on Real Estate
                                December 31, 2004
<TABLE>
<S>             <C>         <C>          <C>          <C>             <C>           <C>           <C>         <C>         <C>




                                                                                                  Col. H
                                                                                                 Principal
                                                                      Col. F                     Amount of
                                                                       Face         Col. G         Loans
                            Col. C       Col. D                      Amount of     Carrying      Subject to               Col. J
                Col. B      Final       Periodic      Col. E          Mortgage     Amount of     Delinquent   Col. I    California
  Col. A       Interest    Maturity      Payment       Prior          Original     Mortgage     Principal or  Type of   Geographic
 Descript.      Rate         Date        Terms         Liens           Amount      Investment     Interest     Lien      Location
------------- ---------- ------------ ----------- -------------- -------------- -------------- ------------- --------- -------------
Apts.             6.50%   05/01/06          $541        $89,904        $75,000        $96,716       $96,716    2nd     Sacramento
Apts.            12.00%   07/01/06         5,755              -        720,000        776,228       776,228    1st     San Francisco
Comm.            10.00%   12/01/03           471              -         53,636         53,229        53,229    1st     Stanislaus
Comm.            10.00%   12/01/03           105         82,723         11,919         11,621        11,621    2nd     Stanislaus
Comm.            10.00%   07/01/11         1,995              -        219,538        211,491             -    1st     Santa Clara
Comm.             7.50%   02/28/07         3,206              -        513,000        560,354             -    1st     Santa Clara
Comm.             7.50%   02/28/07         4,290              -        686,400        686,400             -    1st     Alameda
Comm.             9.00%   08/01/09         3,000              -        400,000        400,000             -    1st     San Francisco
Apts.            10.50%   06/01/08           944        389,330        100,000         98,920             -    2nd     Alameda
Res.             10.50%   07/01/08           915              -        100,000         99,353             -    1st     San Francisco
Res.              8.75%   01/01/09         2,242              -        285,000        283,163             -    1st     Alameda
Res.             10.00%   12/25/05         8,333        348,261      1,000,000        752,334             -    2nd     Alameda
Res.              9.50%   04/01/09         1,623              -        193,000        192,219             -    1st     Sacramento
Res.              9.25%   04/01/09         1,080              -        131,250        130,974             -    1st     Contra Costa
Res.              9.00%   04/01/09         1,139              -        141,500        140,360             -    1st     San Joaquin
Res.              9.00%   04/01/09         1,175              -        146,000        145,417             -    1st     Merced
Res.              9.25%    0501/09           921              -        112,000        111,936       111,936    1st     Santa Clara
Res.              9.25%   07/01/09         1,892        416,018        230,000        229,404             -    2nd     Contra Costa
Res.              9.25%   07/01/09           905              -        110,000        109,788             -    1st     Madera
Res.              9.25%   07/01/09           921        265,759        112,000        111,824             -    2nd     San Mateo
Res.             10.50%   07/01/06         7,000              -        800,000        800,000             -    1st     San Diego
Res.              8.50%   09/01/06         1,417              -        200,000        200,000             -    1st     Monterey
Res.              9.25%   11/01/09         1,234        352,177        150,000        149,922             -    2nd     San Mateo
Res.              9.25%   10/01/09         1,316              -        160,000        159,749             -    1st     Solano
Res.              9.25%   11/01/09         2,468              -        300,000        299,844             -    1st     San Mateo
Res.              9.25%   11/01/09         1,851              -        225,000        224,883             -    1st     Sacramento
Res.              9.25%   11/01/09         1,440              -        175,000        174,849             -    1st     Sacramento
Res.              9.25%   12/01/09         1,460              -        177,500        177,500             -    1st     Sacramento
                                      ----------- -------------- -------------- -------------- -------------

   Total                                 $59,639     $1,944,172     $7,527,743     $7,388,478    $1,049,730
                                      =========== ============== ============== ============== =============
</TABLE>


Note:  Most loans have balloon payments due at maturity.



                                       41
<PAGE>



                         REDWOOD MORTGAGE INVESTORS VII
                       (A California Limited Partnership)
                             Schedule IV (continued)
                          Mortgage Loans on Real Estate
                         Rule 12-29 Loans on Real Estate
                                December 31, 2004


Reconciliation of carrying amount (cost) of loans at close of periods
<TABLE>
<S>                                                         <C>               <C>               <C>

                                                                     Year ended December 31,
                                                        ---------------------------------------------------

                                                            2004              2003              2002
                                                        --------------    -------------    ----------------

   Balance at beginning of year                           $ 8,280,826      $ 6,423,984       $  10,091,195
                                                        --------------    -------------    ----------------
   Additions during period
      New loans                                             3,821,719        4,349,527           1,447,329
      Other                                                         -          107,198             420,969
                                                        --------------    -------------    ----------------
        Total additions                                     3,821,719        4,456,725           1,868,298
                                                        --------------    -------------    ----------------

   Deductions during period
      Collections of principal                              3,517,558        2,556,852           4,569,574
      Foreclosures                                          1,196,509                -             954,488
      Cost of loans sold                                            -                -                   -
      Amortization of premium                                       -                -                   -
      Other                                                         -           43,031              11,447
                                                        --------------    -------------    ----------------
        Total deductions                                    4,714,067        2,599,883           5,535,509
                                                        --------------    -------------    ----------------

   Balance at close of year                               $ 7,388,478      $ 8,280,826      $    6,423,984
                                                        ==============    =============    ================

</TABLE>

     Item 9 - Changes in and  Disagreements  with  Accountants on Accounting and
Financial Disclosure

     There  were no  disagreements  with the  Partnership's  independent  public
accountants during the years ended December 31, 2004 and 2003.


Item 9a. - Controls and Procedures

     The Partnership  carried out an evaluation,  under the supervision and with
the participation of the general partners of the effectiveness of the design and
operation of the Partnership's  disclosure controls and procedures as of the end
of the period  covered by this report  pursuant to Rule 13a-15 of the Securities
Exchange  Act of 1934,  as  amended  Based  upon that  evaluation,  the  general
partners  concluded that the  Partnership's  disclosure  controls and procedures
were effective in timely alerting the general  partners to material  information
related to the  Partnership  that is required  to be  included  in our  periodic
filings with the Securities and Exchange Commission.

     There were no significant  changes in the  Partnership's  internal  control
over financial  reporting  during the  Partnership's  fourth fiscal quarter that
have materially affected,  or are likely to materially affect, the Partnership's
internal control over financial reporting.


Item 9b. - Other Information

None



                                       42
<PAGE>

                                    Part III


Item 10 - Directors and Executive Officers of the Registrant

     The Partnership has no Officers or Directors. Rather, the activities of the
Partnership  are  managed  by  the  two  general  partners,  one of  whom  is an
individual, Michael R. Burwell. The second general partner is Gymno Corporation,
a  California  corporation,  formed  in  1986.  Mr.  Burwell  is one of the  two
shareholders  of Gymno  Corporation,  a  California  corporation,  and has a 50%
interest in the corporation.

The General Partners.

     Michael R.  Burwell.  Michael R. Burwell,  age 48,  General  Partner,  past
member  of  Board  of  Trustees  and  Treasurer,   Mortgage  Brokers   Institute
(1984-1986);  President,  Director,  Chief Financial  Officer,  Redwood Mortgage
Corp.  (1979-present);  Director,  Secretary  and  Treasurer  A  &  B  Financial
Services, Inc. (1980-present);  President, Director, Chief Financial Officer and
Secretary (since 1986) of Gymno Corporation;  President, Director, Secretary and
Treasurer of The Redwood Group, Ltd. (1979-present).  Mr. Burwell is licensed as
a real estate sales person.

     Gymno  Corporation.  Gymno  Corporation,  General Partner,  is a California
corporation  formed in 1986 for the  purpose  of acting as a general  partner of
this  partnership  and of other limited  partnerships  formed by the  individual
general partners. The shares in Gymno Corporation are held equally by Michael R.
Burwell  and the  estate  of D.  Russell  Burwell.  Upon the  completion  of the
administration of D. Russell  Burwell's  estate,  Michael R. Burwell will have a
controlling  interest in Gymno Corporation.  Michael R. Burwell is a director of
Gymno and the director  position held by D. Russell Burwell is currently vacant.
Michael R. Burwell is its President, Chief Financial Officer and Secretary.

Financial Oversight by General Partners.

     The Partnership  does not have a board of directors or an audit  committee.
Accordingly,  the general  partners  serve the  equivalent  function of an audit
committee  for,  among  other  things,  the  following  purposes:   appointment,
compensation,  review  and  oversight  of the  work  of our  independent  public
accountants,  and  establishing  the  enforcing of the Code of Ethics.  However,
since the Partnership  does not have an audit committee and the general partners
are not independent of the Partnership,  the Partnership does not have an "audit
committee financial expert."

Code of Ethics.

     The  general  partners  have  adopted  a Code of Ethics  applicable  to the
general partners and to any agents, employees or independent contractors engaged
by the  general  partners  to perform the  functions  of a  principal  financial
officer, principal accounting officer or controller of the Partnership,  if any.
You may obtain a copy of this Code of Ethics,  without  charge,  upon request by
calling our Investor Services Department at (650) 365-5341.





                                       43
<PAGE>

Item 11 - Executive Compensation

       COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES BY PARTNERSHIP

     As  indicated  above  in  Item  10,  the  Partnership  has no  Officers  or
Directors. The Partnership is managed by the general partners. There are certain
fees and other items paid to management and related parties.

     A more  complete  description  of management  compensation  is found in the
Prospectus, pages 12-13, under the section "Compensation of the General Partners
and the Affiliates",  which is incorporated by reference.  Such  compensation is
summarized below.

     The  following  compensation  has been  paid to the  general  partners  and
affiliates  for services  rendered  during the year ended December 31, 2004. All
such compensation is in compliance with the guidelines and limitations set forth
in the Prospectus.
<TABLE>
<S>                                          <C>                                                              <C>

Entity Receiving Compensation                Description of Compensation and Services Rendered                Amount
------------------------------------- ----------------------------------------------------------------- -------------------
I.  Redwood Mortgage Corp.            Mortgage Servicing Fee for servicing loans...................................$81,442

General Partners &/or Affiliates      Asset Management Fee for managing assets.....................................$34,073

General Partners                      1% interest in profits........................................................$5,786


II. FEES PAID BY BORROWERS ON MORTGAGE LOANS PLACED WITH THE PARTNERSHIP BY
COMPANIES RELATED TO THE GENERAL PARTNERS (EXPENSES OF BORROWERS NOT OF THE
PARTNERSHIP) DURING THE YEAR ENDED DECEMBER 31, 2004

Redwood Mortgage Corp.                Mortgage Brokerage Commissions for services in connection
                                      with the review, selection, evaluation, negotiation, and
                                      extension
                                      of the loans paid by the borrowers and not by the Partnership................$93,465

Redwood Mortgage Corp.                Processing and Escrow Fees for services in connection with fees
                                      notary, document preparation, credit investigation, and escrow
                                      payable by the borrowers and not by the Partnership...........................$8,233

Gymno Corporation                     Reconveyance Fee..............................................................$1,241

III. IN ADDITION, THE GENERAL PARTNERS AND/OR RELATED COMPANIES PAY CERTAIN
EXPENSES ON BEHALF OF THE PARTNERSHIP FOR WHICH IT IS REIMBURSED AS NOTED IN THE
STATEMENT OF INCOME DURING THE YEAR ENDED DECEMBER 31, 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . .  $17,826
</TABLE>


                                       44
<PAGE>


Item 12 - Security Ownership of Certain Beneficial Owners and Management

     The general partners are to own an aggregate total of 1% of the Partnership
including a 1% portion of income and losses.

Item 13 - Certain Relationships and Related Transactions

     Refer to footnotes 3 and 4 of the Notes to Financial  Statements in Part II
item 8, which describes related party fees and data.

     Also refer to the Prospectus dated October 20, 1989 (incorporated herein by
reference) on page 12 "Compensation of General Partners and Affiliates" and page
14 "Conflicts of Interest".

Item 14 - Principal Accountant Fees and Services

     Fees for services performed for the Partnership by the principal accountant
for 2004 and 2003 are as follows:

     Audit Fees The aggregate  fees billed  during the years ended  December 31,
2004  and  2003  for  professional  services  rendered  for  the  audit  of  the
Partnership's  annual financial  statements included in the Partnership's Annual
Report  on  Form  10-K  and  review  of  financial  statements  included  in the
Partnership's   Quarterly  Reports  on  Form  10-Q  were  $40,643  and  $37,513,
respectively.

     Audit  Related  Fees  There  were no fees  billed  during  the years  ended
December 31, 2004 and 2003 for audit-related services.

     Tax fees The  aggregate  fees billed for tax  services  for the years ended
December  31, 2004 and 2003,  were $4,854 and $3,495,  respectively.  These fees
relate to professional services rendered primarily for tax compliance.

     All Other  Fees  There were no other  fees  billed  during the years  ended
December 31, 2004 and 2003.

     All audit and non-audit  services are approved by the general partner prior
to the accountant being engaged by the Partnership.



                                       45
<PAGE>

                                     Part IV

Item 15 - Exhibits, Financial Statements and Schedules

A.       Documents filed as part of this report are incorporated:

         1. In Part II, Item 8 under A - Financial Statements.

         2. The Financial Statement Schedules are listed in Part II - Item 8
            under B - Financial Statement Schedules.

         3. Exhibits.
<TABLE>
<S>                     <C>

   Exhibit No.          Description of Exhibits
------------------      ---------------------------------------------------------------------------------------------

    3.1               Limited Partnership Agreement
    3.2               Form of Certificate of Limited Partnership Interest
    3.3               Certificate of Limited Partnership
    10.1              Escrow Agreement
    10.2              Servicing Agreement
    10.3           (a)Form of Note secured by Deed of Trust which provides for principal and interest payments.
                   (b)Form of Note secured by Deed of Trust which provides principal and interest payments and
                      right of assumption
                   (c)Form of Note secured by Deed of Trust which provides for
                      interest only payments
                   (d)Form of Note
    10.4           (a)Deed of Trust and Assignment of Rents to accompany Exhibits   10.3  (a), and (c)
                   (b)Deed of Trust and Assignment of Rents to accompany Exhibit 10.3 (b)
                   (c)Deed of Trust to accompany Exhibit 10.3 (d)
    10.5              Promissory Note for Formation Loan
    10.6              Agreement to Seek a Lender
    31.1              Certification of General Partner pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
    31.2              Certification of General Partner pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
    32.1              Certification of General Partner pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
    32.2              Certification of General Partner pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
</TABLE>

     All of the above  exhibits,  other than  31.1,  31.2,  32.1 and 32.2,  were
previously  filed  as the  exhibits  to  Registrant's  Statement  on  Form  S-11
(Registration No. 33-30427 and incorporated by reference herein).


B.       See A (3) above.

C.       See A (2) above. Additional reference is made to the prospectus (S-11
         filed as part of the Registration statement) dated October 20, 1989 to
         pages 65 through 67 and Supplement #5 dated February 14, 1992 for
         financial data related to Gymno Corporation, a general partner.



                                       46
<PAGE>



                                   SIGNATURES

     Pursuant  to the  requirements  of Section  13 or 15 (d) of the  Securities
Exchange Act of 1934 the  registrant has duly caused this report to be signed on
its behalf by the undersigned,  thereto duly authorized on the 31st day of March
2005.

REDWOOD MORTGAGE INVESTORS VII

By:       /S/ Michael R. Burwell
          ---------------------------------------------
          Michael R. Burwell, General Partner


By:       Gymno Corporation, General Partner

          By:     /S/ Michael R. Burwell
                  -------------------------------------------
                  Michael R. Burwell, President, Secretary
                   & Chief Financial Officer


     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report has been signed below by the following person on behalf of the registrant
and in the capacity indicated on the 31st day of March 2005.
<TABLE>
<S>                                                   <C>                                   <C>

            Signature                                 Title                                 Date


/S/ Michael R. Burwell
-----------------------------------
Michael R. Burwell                              General Partner                        March 31, 2005


/S/ Michael R. Burwell
-----------------------------------
Michael R. Burwell                        President, Secretary & Chief                 March 31, 2005
                                           Financial Officer of Gymno
                                        Corporation (Principal Financial
                                            and Accounting Officer);
                                         Director of Gymno Corporation
</TABLE>




                                       47
<PAGE>



                                                                    Exhibit 31.1

                          GENERAL PARTNER CERTIFICATION


I, Michael R. Burwell, General Partner of the Partnership, certify that:

     1. I have  reviewed  this  annual  report on Form 10-K of Redwood  Mortgage
Investors VII, a California Limited Partnership (the "Registrant");

     2. Based on my  knowledge,  this annual  report does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

     3. Based on my knowledge,  the financial  statements,  and other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
Registrant as of, and for, the periods presented in this annual report;

     4. The  Registrant's  other  certifying  officers and I are responsible for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:

     (a)  designed  such  disclosure  controls  and  procedures,  or caused such
disclosure  controls and  procedures to be designed  under our  supervision,  to
ensure that  material  information  relating to the  Registrant,  including  its
consolidated subsidiaries,  is made known to us by others within those entities,
particularly during the period in which this annual report is being prepared;

     (b) evaluated the effectiveness of the Registrant's disclosure controls and
procedures and presented in this report our conclusions  about the effectiveness
of the disclosure  controls and procedures,  as of the end of the period covered
by this report based on such evaluation, and

     (c) disclosed in this report any change in the Registrant's  annual control
over  financial  reporting  that occurred  during the  Registrant's  most recent
fiscal quarter (the Registrant's  fourth fiscal quarter in the case of an annual
report) that has  materially  affected,  or is  reasonably  likely to materially
affect, the Registrant's internal control over financial reporting; and

     5. The Registrant's other certifying  officers and I have disclosed,  based
on our most recent evaluation of internal control over financial  reporting,  to
the  Registrant's  auditors  and the audit  committee of  Registrant's  board of
directors (or persons performing the equivalent function):

     (a) all significant  deficiencies and material  weaknesses in the design or
operation of internal  controls over  financial  reporting  which are reasonably
likely  to  adversely  affect  the  Registrant's  ability  to  record,  process,
summarize and report financial data; and

     (b) any fraud,  whether or not material,  that involves management or other
employees who have a significant role in the Registrant's  internal control over
financial reporting.




/s/ Michael R. Burwell
----------------------------
Michael R. Burwell, General Partner
March 31, 2005



                                       48
<PAGE>

                                                                    Exhibit 31.2


               PRESIDENT AND CHIEF FINANCIAL OFFICER CERTIFICATION

     I,  Michael R.  Burwell,  President  and Chief  Financial  Officer of Gymno
Corporation, General Partner of the Partnership, certify that:

     1. I have  reviewed  this  annual  report on Form 10-K of Redwood  Mortgage
Investors VII, a California Limited Partnership (the "Registrant");

     2. Based on my  knowledge,  this annual  report does not contain any untrue
statement of a material fact or omit to state a material fact  necessary to make
the statements made, in light of the  circumstances  under which such statements
were made,  not  misleading  with  respect to the period  covered by this annual
report;

     3. Based on my knowledge,  the financial  statements,  and other  financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
Registrant as of, and for, the periods presented in this annual report;

     4. The  Registrant's  other  certifying  officers and I are responsible for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:

     (a)  designed  such  disclosure  controls  and  procedures,  or caused such
disclosure  controls and  procedures to be designed  under our  supervision,  to
ensure that  material  information  relating to the  Registrant,  including  its
consolidated subsidiaries,  is made known to us by others within those entities,
particularly during the period in which this annual report is being prepared;

     (b) evaluated the effectiveness of the Registrant's disclosure controls and
procedures and presented in this report our conclusions  about the effectiveness
of the disclosure  controls and procedures,  as of the end of the period covered
by this report based on such evaluation; and

     (c) disclosed in this report any change in the Registrant's  annual control
over  financial  reporting  that occurred  during the  Registrant's  most recent
fiscal quarter (the Registrant's  fourth fiscal quarter in the case of an annual
report) that has  materially  affected,  or is  reasonably  likely to materially
affect, the Registrant's internal control over financial reporting; and

     5. The Registrant's other certifying  officers and I have disclosed,  based
on our most recent evaluation of internal control over financial  reporting,  to
the  Registrant's  auditors  and the audit  committee of  Registrant's  board of
directors (or persons performing the equivalent function):

     (a) all significant  deficiencies and material  weaknesses in the design or
operation of internal  control over  financial  reporting  which are  reasonably
likely  to  adversely  affect  the  Registrant's  ability  to  record,  process,
summarize and report financial data; and

     (b) any fraud,  whether or not material,  that involves management or other
employees who have a significant role in the Registrant's  internal control over
financial reporting.



/s/ Michael R. Burwell
--------------------------
Michael R. Burwell, President and
Chief Financial Officer of Gymno
Corporation, General Partner
March 31, 2005



                                       49
<PAGE>



                                                                    Exhibit 32.1

                            CERTIFICATION PURSUANT TO
                             18 U.S.C SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


     In connection with the Annual Report of Redwood Mortgage Investors VII (the
"Partnership") on Form 10-K for the period ended December 31, 2004 as filed with
the  Securities  and  Exchange  Commission  on the date hereof  (the  "Report"),
pursuant  to 18  U.S.C.  (S)  1350,  as  adopted  pursuant  to  (S)  906  of the
Sarbanes-Oxley  Act of 2002,  I,  Michael  R.  Burwell,  General  Partner of the
Partnership, certify, that to the best of my knowledge:

     (1) The Report fully  complies  with the  requirements  of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and

     (2)  The  information  contained  in the  Report  fairly  presents,  in all
material  respects,  the  financial  condition  and results of operations of the
Partnership at the dates and for the periods indicated.




/s/ Michael R. Burwell
-----------------------------
Michael R. Burwell, General Partner
March 31, 2005





                                       50
<PAGE>
                                                                    Exhibit 32.2


                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


     In connection with the Annual Report of Redwood Mortgage Investors VII (the
"Partnership") on Form 10-K for the period ended December 31, 2004 as filed with
the  Securities  and  Exchange  Commission  on the date hereof  (the  "Report"),
pursuant  to 18  U.S.C.  (S)  1350,  as  adopted  pursuant  to  (S)  906  of the
Sarbanes-Oxley Act of 2002, I, Michael R. Burwell, President and Chief Financial
Officer of Gymno Corporation,  General Partner of the Partnership,  certify that
to the best of my knowledge:

     (1) The Report fully  complies  with the  requirements  of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and

     (2)  The  information  contained  in the  Report  fairly  presents,  in all
material  respects,  the  financial  condition  and results of operations of the
Partnership at the dates and for the periods indicated.




/s/ Michael R. Burwell
-----------------------------
Michael R. Burwell, President and
Chief Financial Officer of Gymno
Corporation, General Partner
March 31, 2005


                                       51